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

M/s Rao & Associates, Chartered Accountants, are approached by Kiran Textiles Ltd to audit its financial statements. Before accepting, the firm wishes to check whether any ethical or competence issue could prevent acceptance. Under SA 210 and the Code of Ethics, what is the most appropriate step for the firm to take first?

The firm should first communicate in writing with the existing or previous auditor before accepting the audit. This is required under the Code of Ethics so the incoming auditor can learn of any professional reasons against acceptance. Informing the predecessor after acceptance, or relying on management's assurance, does not satisfy the requirement.

  1. ACommunicate with the existing auditor in writing, as required by the Code of Ethics, before accepting the auditCorrect
  2. BAccept the audit and then inform the existing auditor within 30 days
  3. CObtain the client's management representation that no objection exists and proceed without contacting anyone
  4. DWait for the Registrar of Companies to confirm that the previous auditor has resigned

Explanation

Before accepting an audit, a chartered accountant must communicate with the existing or previous auditor to ascertain whether there are professional reasons why the appointment should not be accepted. Accepting first and informing later reverses the required order. Management's representation cannot replace the communication with the previous auditor.

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