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CA Intermediate · Auditing and Ethics · Audit Strategy, Audit Planning and Audit Programme

Sundaram & Co., Chartered Accountants, are appointed auditors of Kaveri Textiles Ltd. for the first time. The audit partner wants to confirm that the firm has the capability, competence and time to perform the engagement, and that it can comply with ethical requirements, before the engagement letter is signed. Under the Standards on Auditing, which action is appropriate at this stage?

The auditor should perform preliminary engagement activities before accepting the engagement. These include evaluating compliance with ethical requirements such as independence and competence, and establishing the terms of engagement. SA 300 requires this at the start of the audit, not after fieldwork has begun or by the client's decision.

  1. ADefer the evaluation of independence and competence until the interim audit visit is completed
  2. BPerform the preliminary engagement activities, including evaluating compliance with ethical requirements such as independence, before accepting the engagementCorrect
  3. CBegin substantive testing first and then decide whether the firm can continue
  4. DDelegate the decision on acceptance entirely to the client's audit committee

Explanation

SA 300 requires the auditor to undertake preliminary engagement activities at the start of the current audit: continuance of the client relationship, evaluating compliance with ethical requirements including independence, and establishing the terms of engagement. These are done before substantive work, so deferring them or leaving the decision to the client's committee is wrong.

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