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

CA Nair is the statutory auditor of Meghdoot Power Ltd and is also asked by the company to provide reasonable assurance on its BRSR core indicators. The company also wants Nair's firm to design the ESG data collection system and the internal controls over emissions data that Nair would then assure. Which conclusion is correct under the Code of Ethics?

The arrangement is not appropriate. Designing the ESG data system and controls and then assuring their output creates a self-review threat to independence. Such a threat is generally too significant for safeguards like a separate fee or informing the audit committee later, so the firm should decline one of the roles.

  1. APermitted, because ESG data is non-financial and independence rules do not apply
  2. BPermitted, provided a separate fee is charged for the design work
  3. CPermitted, if the audit committee is merely informed after the system is implemented
  4. DNot appropriate, because designing the system and then assuring its output creates a self-review threat that safeguards are unlikely to reduce to an acceptable levelCorrect

Explanation

Independence requirements apply to assurance engagements regardless of subject matter. Designing the very controls and data system whose output is later assured creates a self-review threat, which is too significant for safeguards such as separate fees or after-the-fact notice to remedy. Hence the combination should be declined.

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