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

CA Priya is engaged for a forensic accounting assignment to quantify loss from a suspected diversion of funds at Sagar Exports Ltd, which may be used in arbitration. Her firm is also the internal auditor of Sagar Exports and designed the payment-approval controls now alleged to have failed. Under the Code of Ethics, which conclusion is most appropriate?

She should assess the self-review threat from having designed the controls under review and decline the engagement unless safeguards reduce the threat to an acceptable level. Expertise or confidentiality does not justify impaired objectivity, and the prior role should not be concealed from the tribunal.

  1. AShe may accept, since forensic work is always exempt from independence considerations
  2. BShe should evaluate the self-review threat arising from having designed the controls, and decline the engagement or apply safeguards only if the threat can be reduced to an acceptable levelCorrect
  3. CShe may accept and should keep the prior role undisclosed to the arbitration tribunal to protect client confidentiality
  4. DShe must accept, since the firm's knowledge of the controls makes it the best qualified

Explanation

Having designed the controls that are now being examined creates a self-review threat and may impair objectivity. The professional must evaluate it and decline if safeguards cannot reduce it to an acceptable level. Expertise does not override objectivity, and concealing the role from the tribunal would breach integrity and transparency.

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