SMN Limited is a management consultancy firm and in operation for the last 15 years. The company's financial reporting process is sound, and its…

CA Final · Advanced Auditing, Assurance and Professional Ethics · RTP · November 2024
SMN Limited is a management consultancy firm and in operation for the last 15 years. The company's financial reporting process is sound, and its statutory auditors has issued clean report on the audit of the financial statements of the company since inception. Due to mandatory audit rotation under the Companies Act 2013, MNO & Associates was appointed as the new auditor for the financial year ending 31 March 2024. During the audit, MNO & Associates performed procedures on both the current year's financials and the opening balances. No significant issues have been observed during the audit and the auditors intended to issue a clean report, they included an "Other Matters" paragraph in the draft report, noting that the previous year's financials were audited by a different auditor. The management requested this reference to be removed since MNO & Associates audited the opening balances also and such a reference is not required. However, the auditors did not agree with the management. Please advise the auditor or the management whoever is incorrect with the right guidance.
(A) The contention of the management is valid. After performing all the audit procedures, an auditor should not pass on the responsibility to another auditor by including such references in his audit report.
(B) Any auditor has two options, either to perform audit procedures on opening balances or given such reference of another auditor in his report. An auditor cannot mix up the things like this auditor has done. It is completely unprofessional.
(C) In the given situation even if the auditor wants to give such reference, the management and the auditor should have taken approval from the previous auditor at the time of appointment of new auditor. In this case, it cannot be done.
(D) The report of the auditor is correct and is in line with the Standards on Auditing. An auditor is required to include such reference in his report under Other Matter Paragraph which require referencing the previous auditor when applicable.

Suggested Answer and Working Notes:

Correct Answer: Option (D)

The report of the auditor is correct and is in line with the Standards on Auditing. An auditor is required to include such reference in his report under Other Matter Paragraph which require referencing the previous auditor when applicable.

Topics: Standard on Auditing (SA), Reporting

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