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CA Final · Advanced Auditing, Assurance and Professional Ethics · Overview of Audit of Public Sector Undertakings

While auditing Himgiri State Transport Corporation, a Government company, CA Suresh receives from the CAG a direction on the manner in which the company's accounts are to be audited, which includes a specific direction on sampling of depot-level records. Which action is correct?

The auditor must comply with the CAG's directions on the manner of audit and report on the action taken on them and their impact on the accounts and financial statements. Ignoring the direction, hiding it, or seeking Board approval would be incorrect.

  1. AComply with the direction, and report on the action taken thereon and its impact on the accounts and financial statements of the companyCorrect
  2. BIgnore the direction since the auditor's independence prohibits any external direction
  3. CComply but do not mention it in the report, as directions are confidential between auditor and CAG
  4. DRefer the direction to the Board for approval before acting on it

Explanation

For a Government company the CAG may give directions on the manner of audit, and the auditor must comply with them. The auditor must also report on the action taken on those directions and their impact on accounts and financial statements. Ignoring them or seeking Board approval is wrong.

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