Page 16 - CA Final PARAM Digital Book.

Part 2 - SA 220

Client Relationships and Audit Engagements (Acceptance & Old Course- (N22M)
QNO
3.080 Continuance)
TITANIUM CNO--SA220.100
NEMI Limited (manufacturer of textile goods) got an order of manufacturing of PPE kits in December 2021.
But there was shortage of machinery and manpower to accomplish the ordered requirement of PPE kits.
NEMI Limited approached another manufacturing unit Rathnemi Limited for purchase of the unit.
Rathnemi Limited was interested in the sale of unit, so the deal went through, and NEMI Limited acquired
ninety five percent shares of Rathnemi Limited. The new management of Rathnemi Limited proposed and
appointed Mani Associates, Chartered Accountants, (already auditors of NEMI Limited) as new auditors of
Rathnemi Limited. Mani Associates accepted the assignment without considering information whether
the conclusions reached regarding the acceptance and continuance of client relationships and audit
engagements are appropriate. Comment with respect to appropriate Standard on Auditing what type of
information assists the engagements partner in determining whether the conclusions reached regarding
the acceptance and continuance of client relationships and audit engagements are appropriate or not?
Answer Acceptance and Continuance of Client Relationships and Audit Engagements : As per SA 220, “Quality
Control for an Audit of Financial Statements” , SQC 1, “Quality Control for Firms that Perform Audits and
Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements”,
requires the firm to obtain information considered necessary in the circumstances before accepting an
engagement with a new client, when deciding whether to continue an existing engagement, and when
considering acceptance of a new engagement with an existing client.

Information such as the following assists the engagement partner in determining whether the conclusions
reached regarding the acceptance and continuance of client relationships and audit engagements are
appropriate:

(i) The integrity of the principal owners, key management and those charged with governance of
the entity.
(ii) Whether the engagement team is competent to perform the audit engagement and has the
necessary capabilities, including time and resources.
(iii) Whether the firm and the engagement team can comply with relevant ethical requirements; and
(iv) Significant matters that have arisen during the current or previous audit engagement, and their
implications for continuing the relationship.

QNO Responsibility of Engagement Partner & Resolving Difference of Opinion Old Course - (N11R, N16R)
4.000 TITANIUM CNO -- SA220.180

You are an audit senior working for the firm Bohra & Company You are currently carrying out the audit of
Wisdom Ltd, a manufacturer of waste paper bins You are unhappy with Wisdom Ltd.’s inventory valuation
policy and have raised the issue several times with the audit manager He has dealt with the client for a
number of years and does not see what you are making an objection about He has refused to meet you on
site to discuss those issues As the audit manager had dealt with Wisdom Ltd for so many years, the other
partners have decided to leave the audit of Wisdom Ltd in his capable hands Comment on the situation
outlines above.
Answer Part I -- Relevant Standards & Laws
▪ SQC 1, Quality Control for Firms that perform Audits and Reviews of Historical Financial Information
and Other Assurance and Related Services Engagements
▪ SA 220, Quality Control over Audit of Financial Statements
Part II -- Requirements of Relevant Standards & Laws
➢ Engagement Partner- Should take Responsibility / If he is not involved then other
requirements like independence, directing, supervision, review are also compromised
/ Just Assigning audit to experienced staff not sufficient:

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