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CA Final · Advanced Auditing, Assurance and Professional Ethics · Quality Control

Rao & Partners is auditing Himalaya Pharma Ltd, a listed company. During the audit, the engagement partner consulted the designated reviewer a few times on routine accounting queries. Later the consultations became extensive and the reviewer effectively helped shape key judgments, putting objectivity at risk, and this cannot be managed. What should the firm do under SQC 1?

Where consultations become significant and the reviewer's objectivity cannot be preserved, the firm should appoint another individual within the firm or a suitably qualified external person to act as either the reviewer or the person consulted. Some consultation alone does not disqualify the reviewer.

  1. AAppoint another individual within the firm or a suitably qualified external person as reviewer or as the person to be consultedCorrect
  2. BDrop the review since the reviewer already knows the engagement well
  3. CLet the same reviewer continue, since consultation never affects eligibility
  4. DHave the engagement partner sign the review documentation instead

Explanation

SQC 1 says consultation with the reviewer need not compromise eligibility, but where it becomes significant both sides must protect objectivity. Where this is not possible, another individual within the firm or a suitably qualified external person takes on the role of reviewer or consultee. Continuing unchanged ignores impaired objectivity.

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