Skip to content

CA Intermediate · Auditing and Ethics · Ethics and Terms of Audit Engagements

Ganga & Co., Chartered Accountants, are approached by Veda Textiles Ltd. to audit its financial statements. Before accepting, the engagement partner finds that the previous auditor, CA Mehra, has not yet been communicated with. Under the Code of Ethics, what should the incoming auditor do first?

The incoming auditor should first write to the existing auditor to find out whether there are any professional reasons why the appointment should not be accepted. This must happen before acceptance, not after, because it protects professional courtesy and lets the new auditor learn of relevant concerns.

  1. AAccept the audit at once, since the company's members have approved the appointment
  2. BCommunicate with the existing auditor in writing to ascertain whether there are any professional reasons why the appointment should not be acceptedCorrect
  3. CAsk the company's management to obtain a no-objection letter from the previous auditor's bankers
  4. DAccept the audit, and communicate with the previous auditor only after signing the audit report

Explanation

Before accepting an audit in place of another auditor, the incoming auditor must communicate with the existing auditor in writing to learn of any professional reasons for not accepting. Accepting first, or communicating after the report, defeats the purpose of the check. A banker's letter has no role in this process.

Did you get it right without looking?

One question tells you little. A timed set on Ethics and Terms of Audit Engagements shows your real accuracy, how long you take and where you lose marks.

Practise Ethics and Terms of Audit EngagementsFree diagnostic mock

More Ethics and Terms of Audit Engagements questions