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CS Professional · Compliance Management, Audit and Due Diligence · Internal Audit and Performance Audit

Kaveri Textiles Ltd has an internal audit function. Its management asks the statutory auditor, CA Rohan, to also take up the company's internal audit for the year and to use those results in the statutory audit. Under SA 610 (Revised) and the ICAI Code of Ethics as quoted in it, what is the position?

The arrangement is not permitted. SA 610 (Revised) quotes the ICAI Code of Ethics that a statutory auditor of an entity cannot be its internal auditor, since an independent and objective opinion would not be possible. It also creates a self-review threat when results are used in the audit.

  1. APermitted, if the fee for internal audit is charged separately from the statutory audit fee
  2. BNot permitted, because a statutory auditor of an entity cannot be its internal auditor as independent and objective opinion would not be possibleCorrect
  3. CPermitted, if the audit committee approves and the work is done by a different partner of the same firm
  4. DPermitted for operational areas but not for financial controls

Explanation

The text states that a statutory auditor of an entity cannot be its internal auditor because he cannot give an independent and objective opinion. Accepting the engagement also creates a self-review threat, as results would be used in the audit. Separate fees, committee approval or a different partner do not remove this bar.

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