Sun & Associates are the statutory auditors of a large un-listed company, which is engaged in manufacturing of auto components. Subsequent to…

CA Final · Advanced Auditing, Assurance and Professional Ethics · MTP · May 2025
Sun & Associates are the statutory auditors of a large un-listed company, which is engaged in manufacturing of auto components. Subsequent to re-appointment of auditors in the Annual General Meeting, the company shared the appointment letter with Sun & Associates, seeking acknowledgement and acceptance letter. CA S is the engagement partner and is planning to issue the acceptance letter. During the current financial year, there was a search by the Income-tax Authorities on the company, and certain accounting records were seized for verification. Based on the information available on social media, CA S noted that the promoters' brother, is contemplating to contest in the ensuing elections, under the banner of a political party. One of the current senior engagement team manager, who has been doing the audit engagement till last year, has left Sun & Associates and is planning to provide some accounting services to one of the associate companies. Sun & Associates are yet to recruit another senior manager having adequate experience in the audits of clients engaged in automotive sector. Elaborate the matters to be considered by Sun & Associates with respect to acceptance & continuance of client relationships considering the above issues.

Suggested Answer and Working Notes:

Acceptance and Continuance of Client Relationships: As per SQC 1, “Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements,” a firm before accepting an engagement should acquire vital information about the client. Such an information should help firm to decide about: Integrity of Client, promoters, and key managerial personnel.Competence (including capabilities, time, and resources) to perform engagement.Compliance with ethical requirements. The firm should obtain such information as it considers 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. Where issues have been identified, and the firm decides to accept or continue the client relationship or a specific engagement, it should document how the issues were resolved. Further, as per SA 220, “Quality Control for an Audit of Financial Statements

Topics: Standard on Auditing (SA)

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