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

In the joint audit of Ganga Pharma Ltd, the two joint auditors divided the audit of branches and of specific balance sheet items. A misstatement is later found in a branch's inventory, an area allotted solely to joint auditor A. Separately, the audit report failed to comply with a statutory reporting requirement. Which conclusion is correct?

Only joint auditor A is responsible for the inventory misstatement in his allotted area, while both joint auditors are jointly and severally responsible for ensuring the audit report complies with statutes, Standards on Auditing and ICAI pronouncements. Divided work carries individual responsibility, whereas report compliance is a joint responsibility.

  1. AOnly A is responsible for the inventory misstatement, but both joint auditors are jointly and severally responsible for compliance of the audit report with the statutesCorrect
  2. BBoth are jointly and severally responsible for the inventory misstatement and the report compliance
  3. COnly A is responsible for both matters
  4. DNeither is responsible, because the management prepares the statements

Explanation

For divided work, each joint auditor is responsible only for the work allocated to him, including proper execution of procedures. All joint auditors are jointly and severally responsible for ensuring that the audit report complies with the statutes, the applicable SAs and ICAI pronouncements. Treating both as liable for the divided inventory work ignores this split.

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