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CA Final · Advanced Auditing, Assurance and Professional Ethics · General Auditing Principles and Auditors Responsibilities

During the audit of Himalaya Foods Ltd, CA Rohan identifies that the revenue misstatement is material and suspects management deliberately caused it. He has been appointed by statute and cannot resign easily. Considering SA 240 and its Indian modifications, which conclusion is most appropriate?

The auditor must consider his responsibilities, recognising that in some cases the statute or terms of appointment may leave him no option to withdraw from the engagement. SA 240, as modified for India, retains this point, and the auditor in any case makes no legal determination of fraud.

  1. AHe may always withdraw immediately, as the Standards guarantee a right of withdrawal in every case
  2. BHe must consider his responsibilities, including that in some cases the statute or terms of appointment may leave him no option to withdraw from the engagementCorrect
  3. CHe must stop the audit and issue a clean report
  4. DHe must treat the suspicion as legally proven fraud and discontinue

Explanation

The material modifications to SA 240 retain the point that the option of withdrawal may not be available under a statute or the auditor's terms of appointment. So withdrawal cannot be assumed. Option A is wrong because there is no guaranteed right. Option D is wrong because the auditor makes no legal determinations of fraud.

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