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CA Final · Advanced Auditing, Assurance and Professional Ethics · Professional Ethics & Liabilities of Auditors

Dhruv & Co., statutory auditors of Pinnacle Steels Ltd., are asked to prepare the current and deferred tax calculations used for the accounting entries supporting tax assets and liabilities in the company's financial statements. Which statement correctly identifies the nature of this request under the Code of Ethics?

The request is a tax calculation service, a non-assurance service to an audit client under the tax services subsection. Dhruv & Co. must evaluate threats to independence before accepting, rather than treating it as part of the audit or as an assurance service.

  1. AIt is an assurance service and hence permitted without any assessment
  2. BIt is a tax calculation service, a non-assurance service to an audit client, to be evaluated for threats to independence before acceptanceCorrect
  3. CIt is part of the audit and requires no separate evaluation
  4. DIt is a communication with a proposed accountant

Explanation

The Code describes tax calculation services as preparing calculations of current and deferred tax liabilities or assets for accounting entries supporting tax assets or liabilities in the financial statements of the audit client. This falls under tax services within non-assurance services to an audit client, so threats must be evaluated. Treating it as part of the audit ignores independence threats.

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