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

Three joint auditors audit Shree Polymers Ltd. The work of inventory verification at plants was divided among them, but the audit of related party transactions was left as a common area carried out by all three. A material misstatement in related party disclosures goes undetected. Which statement about liability is correct?

All three joint auditors are jointly and severally responsible. Where audit work is not divided and is carried out by all joint auditors, such as the common area of related party transactions, responsibility is shared. Limited responsibility applies only to work specifically allocated to an individual joint auditor.

  1. AEach joint auditor is liable only for the plant allocated to him, so none is liable for the related party area
  2. BOnly the joint auditor with the largest fee is liable for the common area
  3. CAll three are jointly and severally responsible for the audit work not divided and carried out by allCorrect
  4. DLiability falls only on the auditor who signed the report first

Explanation

Joint auditors are jointly and severally responsible for audit work that is not divided and is carried out by all of them. Responsibility limited to the allocated area applies only to divided work, so the first option wrongly extends that limit to the common area.

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