PMP Industries Ltd. is a listed manufacturing company. CA F is the statutory auditor for the F.Y. 2024-25. During the course of audit CA F and his…

As per SA 240 “The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements" if, as a result of a misstatement resulting from fraud or suspected fraud, the auditor encounters exceptional circumstances that bring into question the auditor's ability to continue performing the audit, the auditor shall: (I) Determine the professional and legal responsibilities applicable in the circumstances, including whether there is a requirement for the auditor to report to the person or persons who made the audit appointment or, in some cases, to regulatory authorities; (II) Consider whether it is appropriate to withdraw from the engagement, where withdrawal from the engagement is legally permitted; and (III) If the auditor withdraws: (i) Discuss with the appropriate level of management and those charged with governance, the auditor's withdrawal from the engagement and the reasons for the withdrawal and (ii) Determine whether there is a professional or legal requirement to report to the person or persons who made the audit appointment or, in some cases, to regulatory authorities, the auditor's withdrawal from the engagement and the reasons for the withdrawal. In the given case, CA F has identified material misstatements arising from fraud, namely fictitious sales of 20crores and missing inventory of 8crores supported by forged records. Despite due communication, both management and those charged with governance have refused to take corrective action, and the Managing Director has further attempted to intimidate the auditor by threatening legal action. These circumstances clearly constitute exceptional circumstances that cast serious doubt on the auditor's ability to continue the audit engagement with integrity and independence. Accordingly, CA F should take the abovementioned actions in compliance with SA 240 under the given circumstances.