MICA Associates., Chartered Accountants, are appointed as statutory auditors of B Ltd. for the first time in F.Y. 2024-25. Before commencing the…

(a) Preliminary engagement activities The auditor considers whether relationship with client should be continued and whether ethical requirements including independence continue to be complied with. It includes: (A) Performing procedures regarding the continuance of the client relationship. It should be ensured that appropriate procedures regarding the acceptance and continuance of client relationships and audit engagements have been followed and that conclusions reached in this regard are appropriate. The firm should 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. Matters such as integrity of principal owners and key management, competence of engagement team to perform the audit engagement and implications of matters that have arisen during current and previous audit engagement may need to be considered. Besides, in case of initial engagements, communication with predecessor auditor should be made, where there has been a change of auditors. (B) Evaluating compliance with ethical requirements, including independence. The auditor shall continuously evaluate compliance with ethical requirements including independence. “Independence” means that the judgement of a person is not subordinate to the wishes or direction of another person who might have engaged him. Throughout the audit engagement, the engagement partner shall remain alert, through observation and making inquiries as necessary, for evidence of non-compliance with relevant ethical requirements by members of the engagement team. (C) Establishing an understanding of terms of engagement. It is in the interests of both the entity and the auditor that the auditor sends an audit engagement letter before the commencement of the audit to help avoid misunderstandings with respect to the audit. It ensures that there is no confusion with the client regarding terms of the engagement.