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

Case: Sundaram Infra Ltd, a holding company, is audited by CA Arjun. A significant subsidiary, Sundaram Roads Pvt Ltd, is audited by another firm, CA Nisha & Co. Arjun, as group auditor, wants to use Nisha's work. He has concerns about her independence and competence after learning that she holds shares in the subsidiary. What should Arjun primarily do?

Arjun should evaluate whether the component auditor meets the relevant ethical requirements, including independence. Since she holds shares in the subsidiary, her independence is impaired, so he cannot rely on her work and must obtain sufficient appropriate evidence by other means. The group auditor remains responsible for the group opinion.

  1. AAccept her work since the subsidiary is audited under the Companies Act
  2. BEvaluate whether the component auditor meets ethical requirements including independence, and if not, he cannot rely on her work and must obtain evidence by other meansCorrect
  3. CDivide responsibility so that the component auditor alone is responsible for the subsidiary opinion in the group report
  4. DAsk management to appoint Nisha as joint auditor of the holding company

Explanation

Under SA 600, the group engagement team must understand whether the component auditor complies with relevant ethical requirements, including independence. If the component auditor is not independent, the group auditor cannot use her work and must perform or obtain the work through other means. The group auditor cannot divide responsibility for the group opinion.

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