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

M/s Rao & Co and M/s Iyer & Associates are appointed joint auditors of Kaveri Textiles Ltd. They divided the work: Rao audits the Coimbatore and Erode units, and Iyer audits the Madurai unit and the head office. Both documented the division and told the company. While auditing Madurai, Iyer finds a related-party transaction that affects the Coimbatore unit's receivables. What should Iyer do?

Iyer should communicate the matter in writing to Rao before the audit is completed. A joint auditor who finds matters relevant to another joint auditor's area, which deserve attention or disclosure, must inform all other joint auditors in writing, even though the work was divided between them.

  1. ADo nothing, because Coimbatore falls within Rao's allocated area
  2. BCommunicate the matter in writing to Rao before the audit is completedCorrect
  3. CReport it only to the audit committee and not to Rao
  4. DRe-audit the Coimbatore unit personally

Explanation

Under the Code of Ethics and SA 299 (Revised), when a joint auditor comes across matters relevant to the areas of other joint auditors that deserve their attention, he should communicate them to all the other joint auditors in writing prior to completion of the audit. Ignoring it because the area belongs to Rao is wrong, since the duty to communicate is independent of the allocation of work.

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