Page 336 - CA Inter Audit PARAM

CA Ravi Taori
Answer As per SA 210, “Agreeing the Terms of Audit Engagements”, the auditor shall agree the terms of the audit
engagement with management or those charged with governance, as appropriate. The agreed terms of the
audit engagement shall be recorded in an audit engagement letter or other suitable form of written
agreement. Such a letter includes, inter alia, objective and scope of audit of financial statements. The
absence of such a letter leads to misunderstanding between auditor and management. As auditor has failed
to send engagement letter, the governing body has formed an improper view of objective and scope of
audit of financial statements.

By not following requirements of SA 210, CA H is not acting ethically. He has violated principle of
professional competence and due care governing professional ethics. This principle requires an accountant
to attain and maintain professional knowledge and skill at the level required to ensure that a client or
employing organization receives competent professional service, based on current technical and
professional standards and relevant legislation and act diligently and in accordance with applicable
technical and professional standards. Maintaining professional competence requires awareness of current
technical and professional standards. Non sending of engagement letter shows lack of such awareness on
part of CA H. Therefore, he has violated said fundamental principle governing professional ethics.

QNO-- Confidentiality Issue - Legal Proceedings New Course – (S24E)
ETH.48 Bhaskar CNO – ETH.040

CA P is a professional accountant in service. In terms of employment and professional relationships with
employer he has to be alert to the possibility of inadvertent disclosure of any information outside the
employing organization. However, in view of disclosure required by law, CAP had to divulge the
information and documents as evidence in course of legal proceedings. Whether CA P has violated any
fundamental principle governing professional ethics in this case? Explain.
Answer Confidentiality principle requires a professional accountant to respect the confidentiality of information
acquired as a result of professional or business relationships. Confidentiality serves the public interest
because it facilitates the free flow of information from the professional accountant’s client or employing
organization to the accountant with the understanding that the information will not be disclosed to a third
party.

However, such confidential information may be disclosed, for example, when it is required by law, when it
is permitted by law and is authorised by the client or employer or there is a professional duty or right to
disclose when not prohibited by law.

In the given situation, CA P, who is a professional accountant in service, and in terms of employment and
professional relationships with the employer he is alert to the possibility of inadvertent disclosures of any
information outside the employing organization. However, CA P had to divulge the information and
documents as evidence in the course of legal proceedings and same was required by law. Therefore, CA. P
will not be held responsible for violation of fundamental principle of “Confidentiality” governing professional
ethics.

QNO— Self Review Threat - Doing Accounting & Auditing New Course – (SM25)
ETH.50 Bhaskar CNO - ETH.080
CA Murli Madhavan provides accounting and bookkeeping services to a leading NGO engaged in
environmental protection work. He is also offered audit of the accounts of NGO. Identify and discuss what
kind of threat to independence may be involved in accepting such an engagement.
Answer • Self-review threats, which occur when during a review of any judgement or conclusion reached in a
previous audit or non-audit engagement (Non audit services include any professional services
provided to an entity by an auditor, other than audit or review of the financial statements. These
include management services, internal audit, investment advisory service, design and
implementation of information technology systems etc.), or when a member of the audit team was
previously a director or senior employee of the client. Instances where such threats come into play
are :
(i) when an auditor having recently been a director or senior officer of the company, and
(ii) when auditors perform services that are themselves subject matters of audit.

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