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

Mehta & Co. and Rao & Associates are appointed joint auditors of Sundaram Textiles Ltd. They divided the audit work: Mehta & Co. audits the northern units and Rao & Associates audits the southern units. While auditing the southern units, Rao & Associates notices an unusual inter-unit transfer that affects the northern units' inventory valuation. What should Rao & Associates do?

Rao & Associates should communicate the matter in writing to Mehta & Co. before the audit is completed. A joint auditor who finds matters relevant to another joint auditor's area must inform all other joint auditors in writing, even where the work has been divided.

  1. AIgnore it, since the northern units are Mehta & Co.'s responsibility alone
  2. BCommunicate the matter in writing to Mehta & Co. before the audit is completedCorrect
  3. CReport it only to the audit committee and not to the other joint auditor
  4. DWait until Mehta & Co. asks about it during the report-signing stage

Explanation

Under the joint audit guidance in the Code of Ethics, where a joint auditor comes across matters relevant to areas of other joint auditors that deserve their attention, he should communicate them in writing to all other joint auditors before completion of the audit. Ignoring the matter because the area is divided is wrong, as the duty to communicate applies precisely to such cross-area matters.

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