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CA Final · Advanced Auditing, Assurance and Professional Ethics · Due Diligence, Investigation & Forensic Accounting

CA Meera is statutory auditor of Orbit Components Ltd. The audit committee of the company requests her firm to also conduct a forensic investigation into suspected diversion of funds identified during the audit. Which is the correct view?

She should first evaluate independence threats and the Companies Act restrictions on non-audit services, then if permissible, accept it under a separate engagement letter with a defined scope. The forensic work is not automatically part of statutory audit, and not all other services are prohibited.

  1. AShe can accept without any consideration as it is part of the statutory audit
  2. BShe must evaluate threats to independence and the Companies Act restrictions on non-audit services before accepting, and the investigation should be under a separate engagement letter with defined scopeCorrect
  3. CShe must accept and report findings directly to the police
  4. DShe cannot ever perform any service other than audit for the company

Explanation

Section 144 of the Companies Act prohibits certain listed services to the audited company, and the Code of Ethics requires evaluating self-review and other threats. Forensic work is not automatically part of the audit, so a separate engagement terms are needed. Option D is too absolute since only specified services are barred.

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