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CA Final · Advanced Auditing, Assurance and Professional Ethics · Sustainable Development Goals (SDG) & Environment, Social and Governance (ESG) Assurance

CA Firm Sharma & Co. provides statutory audit of Kaveri Energy Ltd. The company asks the firm to also assure its BRSR Core data and, in the same engagement, to design and implement the internal data-collection system for ESG metrics. Which is the correct view under the Code of Ethics and the Companies Act?

The firm should not accept the design and implementation assignment. Building the system that generates the ESG data and then assuring that data creates a self-review threat, and assuming a management role, that cannot be reduced by separate partners or by informing the audit committee.

  1. APermissible, since ESG data is non-financial and independence rules do not apply
  2. BPermissible only if separate partners handle each task
  3. CDesigning and implementing the ESG data system creates a self-review threat that is not acceptable for the assurance work, so the firm should not accept the design assignmentCorrect
  4. DPermissible if the audit committee is merely informed after completion

Explanation

Independence requirements apply to assurance engagements for the same client. Designing and implementing the system that produces the data to be assured creates a self-review (and management-participation) threat. Using different partners does not remove a threat of this significance, and merely informing the audit committee is not a safeguard.

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