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

CA Firm Vasudha & Co audits Nirmal Chemicals Ltd and is also asked to provide assurance on its BRSR core indicators. The firm's partner proposes that the same firm also design the company's ESG data-collection system and then assure it. Under the Code of Ethics, what is the correct conclusion?

The firm should not do both. Designing the ESG data-collection system and then assuring its output creates a self-review threat to independence, which is generally too significant to be reduced by safeguards such as separate engagement letters or fee limits. Independence applies equally to non-financial assurance.

  1. APermitted, provided separate engagement letters are signed
  2. BPermitted, because ESG data is non-financial and independence rules apply only to financial audits
  3. CPermitted only if fees for design are below 10% of audit fees
  4. DNot appropriate, as designing the system creates a self-review threat to independence that is generally too significant for the same firm to assure itCorrect

Explanation

Designing or implementing systems that generate the subject matter, then assuring them, is a self-review threat. Independence requirements apply to assurance engagements, including non-financial ones. Separate letters or fee thresholds do not remove the threat.

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