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

Kapoor & Co. and Nair & Associates are joint auditors of Vega Steels Ltd. They allocated audit of the plants between themselves, but both agreed to jointly audit going concern assessment and the compliance of the financial statements with the statute. A going concern issue is later missed. Which statement is correct under the Code of Ethics?

Both firms are jointly and severally responsible. Audit work that is not divided and is carried out by all joint auditors, along with statutory compliance of the financial statements, falls on all joint auditors together, so the missed going concern issue cannot be pinned on one firm alone.

  1. AOnly the firm that audited the plant concerned is responsible
  2. BEach firm is responsible only for 50% of the common area work
  3. CBoth firms are jointly and severally responsible for the work not divided and carried out by all joint auditorsCorrect
  4. DNeither firm is responsible if the management gave a representation

Explanation

All joint auditors are jointly and severally responsible for audit work that is not divided and is carried out by all of them, and for examining statutory compliance of the financial statements. A management representation does not remove this responsibility, and the liability is not split by percentage.

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