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

Two joint auditors of Kaveri Pharma Ltd divided the audit: A audited the manufacturing units and B audited the sales and marketing functions. Both documented the division and communicated it to the company. Later, a material misstatement is found in the stock of a manufacturing unit, which was audited only by A, and no matter had been brought to B's notice. Separately, the audit report omitted a statutory requirement. Which conclusion is correct?

A alone is responsible for the stock audit work allotted to him, while both joint auditors are jointly and severally responsible for the audit report complying with statutes, SAs and ICAI pronouncements. Division of work limits liability for allotted areas only, not for common responsibilities such as report compliance.

  1. AB is jointly and severally liable for the stock misstatement because both signed the report
  2. BA alone is responsible for the stock audit work allotted to him, but both A and B are jointly and severally responsible for ensuring the audit report complies with statutory requirementsCorrect
  3. CNeither is responsible for the report omission since work was divided
  4. DB alone is responsible for the report omission because he audited the final accounts

Explanation

For work divided among joint auditors, each is responsible only for the work allocated to him, including proper execution of procedures. All joint auditors are jointly and severally responsible for ensuring the audit report complies with the relevant statutes, applicable SAs and other pronouncements. So B is not liable for the stock work but both are for the report.

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