Skip to content

CA Intermediate · Auditing and Ethics · Ethics and Terms of Audit Engagements

M/s Rao & Associates, Chartered Accountants, are approached by Kaveri Textiles Ltd to audit its financial statements. Before accepting, the firm learns that the company's previous auditor, CA Menon, has not yet been communicated with. Under the Code of Ethics, what should the incoming auditor do?

The incoming auditor should write to the previous auditor to ascertain whether there are professional reasons for not accepting the appointment. This is required by the Code of Ethics before accepting a replacement audit; accepting without such communication is improper, and neither waiting nor ROC permission is required.

  1. AAccept the audit directly because the company's shareholders have the sole right to appoint the auditor
  2. BCommunicate with the previous auditor in writing to ascertain whether there are professional reasons for not accepting the appointmentCorrect
  3. CWait for CA Menon to approach them with details of his reasons for leaving
  4. DSeek the permission of the Registrar of Companies before accepting the appointment

Explanation

Under the Code of Ethics, a CA who is to replace another auditor must communicate with the existing or previous auditor in writing to find out whether there are professional reasons why the appointment should not be accepted. Accepting directly without enquiry would be an act of professional misconduct risk. Waiting for the previous auditor to approach is not the prescribed procedure, and no ROC permission is needed.

Did you get it right without looking?

One question tells you little. A timed set on Ethics and Terms of Audit Engagements shows your real accuracy, how long you take and where you lose marks.

Practise Ethics and Terms of Audit EngagementsFree diagnostic mock

More Ethics and Terms of Audit Engagements questions