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

Case: Sundaram Textiles Ltd has a subsidiary, Lotus Weaves Pvt Ltd, audited by a different firm, M/s Iyer & Associates. The group auditor, M/s Kulkarni & Co, finds that Lotus is a significant component because of its size. Kulkarni plans to use Iyer's work. Under SA 600 principles, what must the group engagement team primarily do before relying on the component auditor?

The group engagement team must first understand the component auditor's professional competence, independence and compliance with relevant ethical requirements. Reliance is never automatic merely because the firms are Indian, and the group auditor retains sole responsibility for the group opinion rather than transferring it to the component auditor.

  1. AObtain an understanding of the component auditor's independence, professional competence and ethical complianceCorrect
  2. BAssume reliance is automatic since both are Indian chartered accountant firms
  3. CReplace the component auditor's report with its own report for the component
  4. DDisclose in the group report that the component auditor bears full responsibility for that part

Explanation

The group engagement team must understand whether the component auditor understands and will comply with ethical requirements, is independent and competent. Reliance is not automatic. The group auditor cannot shift responsibility to the component auditor by reference in the report, unless law requires it.

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