You have been appointed to compile the financial statements of the Kings & Company (a partnership firm) for tax purposes. During the course of…

CA Final · Advanced Auditing, Assurance and Professional Ethics · MTP · May 2024
You have been appointed to compile the financial statements of the Kings & Company (a partnership firm) for tax purposes. During the course of your work, you discover that the inventory is grossly understated, and the company has failed to apply applicable standards on accounting. On pointing out the same, the partners of the Kings & Co., inform you that it is outside your scope since you are not conducting an audit and the said figures duly certified by the firm should be accepted. Comment.

Suggested Answer and Working Notes:

(a) As per SRS 4410, “Compilation Engagements”, if the practitioner is unable to complete the engagement because management has failed to provide records, documents, explanations or other information, including significant judgments, as requested, the practitioner shall withdraw from the engagement and inform management and those charged with governance of the reasons for withdrawing. If the practitioner becomes aware during the course of the engagement that: (a) The compiled financial information does not adequately refer to or describe the applicable financial reporting framework (b) Amendments to the compiled financial information are required for the financial information not to be materially misstated; or (c) The compiled financial information is otherwise misleading the practitioner shall propose the appropriate amendments to management. If management declines, or does not permit the practitioner to make the proposed amendments to the compiled financial information, the practitioner shall withdraw from the engagement and inform management and those charged with governance of the reasons for withdrawing. If withdrawal from the engagement is not possible, the practitioner shall determine the professional and legal responsibilities applicable in the circumstances. The practitioner shall obtain an acknowledgement from management or those charged with governance, as appropriate, that they have taken responsibility for the final version of the compiled financial information.

Topics: Standard on Auditing (SA)

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