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CA Intermediate · Auditing and Ethics · Nature, Objective and Scope of Audit

CA Joshi is the statutory auditor of Himgiri Foods Ltd. Before the audit begins, the chairman tells him that the company's accounts will be prepared on a basis he has not yet decided and that the audit committee will not give access to all the books of account. Which response best reflects the preconditions for an audit under the Standards on Auditing?

The auditor should first establish that an acceptable financial reporting framework will be used and that management agrees to give unrestricted access to all records and information. These are preconditions for an audit under SA 210, and management representations cannot substitute for withheld books.

  1. AAccept the engagement and decide the framework during the audit, because the opinion is formed only at the end
  2. BAccept the engagement but rely on management representations in place of the records that are withheld
  3. CAccept the engagement and disclose the access limitation only in the Key Audit Matters section
  4. DEstablish whether an acceptable financial reporting framework is used and whether management agrees to provide access to all information, since these are preconditions for the auditCorrect

Explanation

SA 210 requires the auditor to determine that the financial reporting framework is acceptable and to obtain management's agreement to its responsibilities, including unrestricted access to records and information. Without these preconditions the auditor should not accept the engagement as an audit. Representations cannot replace withheld records, and KAM is not a place to cure missing preconditions.

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