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

CA Tanvi is the statutory auditor of Lotus Foods Ltd. Her firm is invited by the audit committee to conduct a forensic investigation into alleged misappropriation at the company's depot. Under the Companies Act, 2013 and the Code of Ethics, which conclusion is most appropriate?

She must assess whether the work falls within services prohibited by the Companies Act and whether it creates independence threats that safeguards cannot reduce to an acceptable level, then decide. Forensic work is neither automatically banned nor freely allowed, and changing the fee payer does not solve the problem.

  1. AShe cannot accept it in any circumstances because forensic work is prohibited for statutory auditors
  2. BShe may accept it freely, as investigation is not listed among services restricted for auditors
  3. CShe must evaluate whether the assignment falls within services barred by the Act (such as internal audit, or management functions) and whether it creates threats to independence that cannot be reduced to an acceptable level, and decide accordinglyCorrect
  4. DShe may accept it only if the fee is paid by the company's promoters instead of the company

Explanation

The Act bars certain non-audit services (for example, internal audit, accounting and book-keeping, management services) for the auditor and the Code requires evaluating independence threats. A forensic investigation is not automatically prohibited or permitted; the facts and safeguards decide. Changing who pays does not address the threat.

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