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CA Intermediate · Auditing and Ethics · Special Features of Audit of Different Type of Entities

CA Rohan audits Kaveri Municipal Corporation, a government body. The Comptroller and Auditor General is not the appointed auditor; rather, the state's local fund audit department conducts the statutory audit, and Rohan is engaged for a separate internal audit. Which statement about his role is correct?

Rohan acts as an internal auditor appointed by the corporation. Internal audit is a management function that coexists with the statutory audit conducted by the local fund audit department. It neither replaces the statutory audit nor allows him to skip his own testing.

  1. AHe must issue the statutory audit report on the corporation's accounts
  2. BHe performs internal audit, which is a management-appointed function and does not replace the statutory auditCorrect
  3. CHe should withdraw because two audits cannot coexist
  4. DHe can rely entirely on the statutory auditor's findings and perform no testing

Explanation

Internal audit is an assurance and monitoring function appointed by management or those charged with governance and operates alongside statutory audit. It does not replace it, and the two can coexist. Hence he conducts his own risk-based testing and reports as per engagement terms.

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