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

M/s Rao & Iyer and M/s Sethi & Co. are joint auditors of Kaveri Textiles Ltd. They divided the work by units and documented it, and communicated it to the company. While auditing Unit A, which is allotted to Rao & Iyer, a partner notices a possible related-party disclosure issue affecting an area allotted to Sethi & Co. What should Rao & Iyer do?

Rao & Iyer should communicate the matter in writing to the other joint auditor before the audit is completed. A joint auditor who finds a matter relevant to another joint auditor's area, or needing disclosure or judgement, must pass it on in writing. Limited responsibility for allocated work does not excuse silence.

  1. ACommunicate the matter in writing to the other joint auditor before the audit is completedCorrect
  2. BIgnore it, since each joint auditor is responsible only for the work allocated to him
  3. CReport it only to the audit committee and not to the other joint auditor
  4. DWait for Sethi & Co. to find it during their own procedures

Explanation

Where a joint auditor comes across matters relevant to the areas of other joint auditors that deserve their attention, he must communicate them in writing to all the other joint auditors before the audit is completed. Option B is wrong because the limited responsibility for allocated work does not remove this duty of communication.

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