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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Advanced Auditing, Assurance and Professional Ethics

Case: Kaveri Agro Foods Ltd, a listed company, is audited by CA Rohan. During the audit, Rohan finds that the company's finance head has asked him to leave out a disclosure of a related party loan of Rs 3 crore, saying it is below the company's own internal reporting threshold. The loan was given to a firm in which a director is a partner. As the auditor, what is the most appropriate response?

The auditor should evaluate whether the related party loan is properly disclosed under the applicable framework and, if it is not, consider modifying the opinion. Disclosure obligations come from Ind AS 24 and company law, so a company's internal threshold cannot override them.

  1. AOmit the matter because the company's internal threshold governs disclosure
  2. BEvaluate whether the transaction is properly disclosed under the applicable framework and, if not, consider modifying the opinionCorrect
  3. CDisclose it only in the auditor's working papers and not in the report
  4. DResign immediately without communicating with those charged with governance

Explanation

Related party disclosure is governed by the financial reporting framework (Ind AS 24 and the Companies Act), not by an internal threshold. If the disclosure is not made, the auditor must consider the effect on the opinion. Leaving it only in working papers does not discharge the reporting duty.

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