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CA Final · Advanced Auditing, Assurance and Professional Ethics · General Auditing Principles and Auditors Responsibilities

CA Neha, auditor of Lotus Foods Ltd, discovers evidence of a management-driven misstatement and decides she may need to withdraw. The terms of her appointment under the governing statute do not allow her to withdraw from the engagement. Consistent with the SA 240 material modifications, which approach is appropriate?

Where statute or the terms of appointment do not allow withdrawal, the auditor recognises that the option of withdrawal may not be available, even for non public sector entities. The auditor must then address the fraud-related matter through other appropriate responses rather than ignoring it or withdrawing regardless.

  1. AWithdraw regardless, since statute never overrides SAs
  2. BRecognise that, in some cases, the auditor may not have an option to withdraw from the engagement because of statute or terms of appointment, and so deal with the matter through other appropriate responsesCorrect
  3. CIgnore the finding, since withdrawal is the only permitted response to fraud
  4. DTreat the entity as a public sector entity, because only they restrict withdrawal

Explanation

The modifications retain the spirit that the option of withdrawal may not be available, including for non public sector entities, due to statute or terms of appointment. The auditor therefore must respond otherwise. Option 4 is wrong as the restriction is not limited to public sector entities.

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