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CA Final · Advanced Auditing, Assurance and Professional Ethics · Quality Control

During the audit of Bharat Agro Pvt Ltd, the engagement partner repeatedly consulted the designated EQCR, Mr. Iyer, and the consultations became significant in nature and extent, with Mr. Iyer effectively shaping the key judgments. What should the firm do under SQC 1?

The firm should take care to preserve the reviewer's objectivity, and if that cannot be done, appoint another individual within the firm or a suitably qualified external person as either the reviewer or the person consulted. Significant consultation can impair the objective review, although ordinary consultation does not.

  1. ATake no action, as consultation never affects the reviewer's eligibility
  2. BCare should be taken to maintain objectivity, and where that is not possible, another individual or a suitably qualified external person should be appointed as reviewer or as the person consultedCorrect
  3. CCancel the EQCR since the reviewer has become part of the engagement team
  4. DRequire the engagement partner to sign the EQCR documentation instead

Explanation

SQC 1 says consultation need not compromise eligibility, but where it becomes significant, both the team and reviewer must take care to maintain objectivity. If that is not possible, another individual within the firm or a suitably qualified external person is appointed as EQCR or as the person consulted. Option A is wrong as it ignores the significance threshold.

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