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

Mehta & Co and Rao & Associates are joint auditors of Sagar Textiles Ltd. They divided the audit work by units and documented the division. While auditing Unit A (allotted to Mehta & Co), a partner of Mehta & Co finds a related-party transaction that affects the area allotted to Rao & Associates and deserves their attention. What should Mehta & Co do?

Mehta & Co should communicate the matter in writing to the other joint auditor before the audit is completed. A joint auditor who finds matters relevant to another joint auditor's area, or needing their attention or judgement, must tell all other joint auditors in writing before completion.

  1. AIgnore it, since Rao & Associates is responsible only for its own allotted work and will find it
  2. BCommunicate it in writing to the other joint auditor before the audit is completedCorrect
  3. CReport it only to the audit committee and not to the other joint auditor
  4. DCommunicate it orally after the audit report is signed

Explanation

Under the Code of Ethics provisions on joint audits (SA 299 (Revised)), a joint auditor who finds matters relevant to the areas of other joint auditors that deserve their attention must communicate them to all other joint auditors in writing prior to completion of the audit. Staying silent or communicating orally after signing does not meet this requirement.

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