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

Mehta & Rao and Iyer & Co. are appointed joint auditors of Sagar Foods Ltd. They divided the audit work by units and documented it. While auditing Unit A, allotted to Mehta & Rao, a partner finds that a related-party balance in Unit B, allotted to Iyer & Co., looks overstated. As per the Code of Ethics, what should Mehta & Rao do?

Mehta & Rao should communicate the matter in writing to Iyer & Co., the other joint auditor, before the audit is completed. A joint auditor who notices matters relevant to another's area must report them, even though responsibility for that unit's work rests with the allocated auditor.

  1. AIgnore it because Unit B is Iyer & Co.'s responsibility alone
  2. BCommunicate the matter in writing to the other joint auditor before the audit is completedCorrect
  3. CCorrect the balance directly in Unit B's records
  4. DMention it only in the report on Unit A

Explanation

Where a joint auditor comes across matters relevant to the areas of other joint auditors that deserve their attention, he must communicate them to all other joint auditors in writing before the audit is completed. Ignoring the matter is wrong because the duty to communicate exists even for areas not allotted to him.

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