M/s Suresh Chandra & Co. has been appointed as an Auditor of SC Ltd. CA Suresh, partner, completed entire routine audit work but unfortunately he died and another partner CA Chandra signed the accounts of SC Ltd without reviewing the work of CA Suresh. Whether CA Chandra is right in expressing opinion on financial statement which is performed by another Auditor…. SA 220

2 answers

Ravi Staff August 13, 2018

Summary of Answer
Part I — Relevant Standards & Laws
SA 220“Quality Control for an Audit of Financial Statements”
Basic Principle of Auditing on Delegation of Work
Part II — Requirements of Relevant Standards & Laws
Requirement of SA 220
1.Takeover, New Partner Should Review Work Done
2.Review Procedures: – Compliance of Law, Regulations, Prof Standards / Significant Matters Raised & Considered / Appropriate Consultations / Conclusions Documented / Evidence is Sufficient & Appropriate / Objectives Achieved / Need to Revise NTE
Requirements as per Basic Principles
Basic Principle of Delegation of Work Governing Audit — Auditor can delegate work but not responsibility

  1. Reliance of Work with Adequate Skill & Care
  2. Direct / Supervise / Review Work

Part III – Case Discussion
Report not signed because of death, other ca signed without review just relying on work done by his partner
Part IV – Conclusion
Non compliance of SA 220 & no adequate skill and due care exercised

#1
Ravi Staff August 13, 2018

Detailed Answer
Part I — Relevant Standards & Laws
SA 220“Quality Control for an Audit of Financial Statements”
 
Basic Principle of Auditing on Delegation of Work
Part II — Requirements of Relevant Standards & Laws
Requirement of SA 220
1.Takeover, New Partner Should Review Work Done
Whenever there is takeover of assignment by new engagement partner, new partner should carefully review work of old engagement partner
2.Review Procedures: – Compliance of Law, Regulations, Prof Standards / Significant Matters Raised & Considered / Appropriate Consultations / Conclusions Documented / Evidence is Sufficient & Appropriate / Objectives Achieved / Need to Revise NTE

  • The work has been performed in accordance with professional standards and regulatory and legal requirements;(E.g. Sec 143 / IRDA Regulations / SAs)
  • Significant matters have been raised for further consideration;(E.g. Accounting for demerger)
  • Appropriate consultations have taken place and the resulting conclusions have been documented and implemented;(Consult Mr A in firm who has audited many such cases)
  • The work performed supports the conclusions reached and is appropriately documented; (E.g. Check whether documents and explanation provide basis for accounting done)
  • The evidence obtained is sufficient and appropriate to support the auditor’s report; and (E.g. Check that all areas are appropriately covered)
  • The objectives of the engagement procedures have been achieved. (We are able to form opinion with reasonable assurance)
  • There is a need to revise the nature, timing and extent of work performed; (E.g. High Court should be obtained, also written representation of CFO on accounting)

Requirements as per Basic Principles
Basic Principle of Delegation of Work Governing Audit — Auditor can delegate work but not responsibility
Further, one of the basic principles, which govern the auditor’s professional responsibilities and which should be complied with wherever an audit is carried, is that when the auditor delegates work to assistants or uses work performed by other auditor and experts, he will continue to be responsible for forming and expressing his opinion on the financial information.

  1. Reliance of Work with Adequate Skill & Care.

However, he will be titled to rely on work performed by others, provided he exercises adequate skill and care and is not aware of any reason to believe that he should not have so relied. This is the fundamental principle which is ethically required as per Code of Ethics.

  1. Direct / Supervise / Review Work.

However, the auditor should carefully direct, supervise and review work delegated. He should obtain reasonable assurance that work performed by other auditors/experts and assistants is adequate for his purpose.
Part III – Case Discussion
Report not signed because of death, other ca signed without review just relying on work done by his partner
In the given case, all the auditing procedures before the moment of signing of final report have been performed by CA. Suresh. However, the report couldn’t be signed by him due to his unfortunate death. Later on, CA. Chandra signed the report relying on the work performed by CA. Suresh.
Part IV – Conclusion
Non compliance of SA 220 & no adequate skill and due care exercised
Here, CA. Chandra is allowed to sign the audit report, though, will be responsible for expressing the opinion. He may rely on the work performed by CA. Suresh provided he further exercises adequate skill and due care and review the work performed by him.

#2

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