Page 11 - CA Final PARAM Digital Book.

• Indications of an inappropriate limitation in the scope of work.
• Indications that the client might be involved in money laundering or other criminal activities
• The reasons for the proposed appointment of the firm and non-reappointment of the
previous firm.

The extent of knowledge a firm will have regarding the integrity of a client will generally grow within
the context of an ongoing relationship with that client.

QNO Competence Issues During Audit Old Course – (N22E)
127.550 TITANIUM CNO -- SQC.180
AP & Associates, Chartered Accountants, are Statutory Auditors of XP Limited for the last four years. XP
Limited is engaged in the manufacture and marketing of FMCG Goods in India. During 2021-22, the
Company has diversified and commenced providing software solutions in the area of "e-commerce" in
India as well as in certain European countries. AP & Associates, while carrying out the audit for the current

financial year, came to know that the company has expanded its operations into a new segment as well
as new geography. AP & Associates does not possess necessary expertise and infrastructure to carry out
the audit of this diversified business activities and accordingly wishes to withdraw from the engagement
and client relationship. Discuss the issues that need to be addressed before deciding to withdraw.
Acceptance and Continuance of Client Relationships and Specific Engagements: As per SQC 1, “Quality
Control for Firms that Perform Audit and Reviews of Historical Financial Information, and other Assurance
and Related Services Engagements”, the firm should establish policies and procedures for the acceptance
and continuance of client relationships and specific engagements, designed to provide it with reasonable
assurance that it will undertake or continue relationships and engagements only where it is competent to
perform the engagement and has the capabilities, time and resources to do so.

In the given case, AP & Associates, Chartered Accountants, statutory auditors of XP Limited for the last four
years, came to know that the company has expanded its operations into a new segment as well as new
geography. AP & Associates does not possess necessary expertise for the same, therefore, AP & Associates
wish to withdraw from the engagement and client relationship. Policies and procedures on withdrawal from
an engagement or from both the engagement and the client relationship address issues that include the
following:

• Discussing with the appropriate level of the client’s management and those charged with its
governance regarding the appropriate action that the firm might take based on the relevant facts
and circumstances.

• If the firm determines that it is appropriate to withdraw, discussing with the appropriate level of the
client’s management and those charged with its governance withdrawal from the engagement or
from both the engagement and the client relationship, and the reasons for the withdrawal.

• Considering whether there is a professional, regulatory or legal requirement for the firm to remain
in place, or for the firm to report the withdrawal from the engagement, or from both the
engagement and the client relationship, together with the reasons for the withdrawal, to regulatory
authorities.

• Documenting significant issues, consultations, conclusions and the basis for the conclusions.
AP & Associates should address the above issues before deciding to withdraw.

QNO Review (Procedures) & Rotation of Partner as per SQC-1 Old Course – (M21E,N22M)
127.600 TITANIUM CNO -- SQC.120
HK & Co. Chartered Accountants have been auditors of SAT Ltd (a listed entity) for the Last 8 financial
years. CA. H, partner of the firm, has been handling the audit assignment very well since the appointment.
The audit work of CA. H and her team is reviewed by a senior partner CA. K to assure that audit is performed
in accordance with professional standards and regulatory and legal requirements. CA. K was out of India
for some personal reasons, so this year CA. G has been asked to review the audit work. In your opinion,

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