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

CA Nisha is appointed to perform a forensic investigation into alleged bribery by a sales team of Lotus Exports Ltd. Midway, she is told that her firm's partner holds a significant shareholding in a competitor named in the allegations. Which is the correct conclusion under the Code of Ethics?

Nisha should treat the partner's shareholding in the named competitor as a conflict of interest, disclose it, and apply safeguards. If the threat cannot be reduced to an acceptable level she must decline or withdraw. The Code of Ethics applies to investigations too, and selective reporting would breach integrity and objectivity.

  1. AThe shareholding creates a conflict of interest threat that must be disclosed and, if it cannot be reduced to an acceptable level, she must decline or withdrawCorrect
  2. BShe may continue without disclosure because investigations are not assurance engagements
  3. CShe may continue if she promises to give a favourable report to the competitor
  4. DShe must continue but only report findings that do not involve the competitor

Explanation

A significant financial interest in a party connected to the matter threatens objectivity and creates a conflict of interest, irrespective of the engagement type. The threat must be identified, disclosed and safeguards applied; if these are insufficient, the member declines or withdraws. Favouring any party or filtering findings would breach integrity and objectivity.

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