CA Isha has been appointed as statutory auditor for the financial year 2024-25 by Air Ltd., which is on the verge of becoming sick unit and has…

CA Final · Advanced Auditing, Assurance and Professional Ethics · MTP · May 2026
CA Isha has been appointed as statutory auditor for the financial year 2024-25 by Air Ltd., which is on the verge of becoming sick unit and has accumulated losses but the said losses are not equal to or exceeding its entire net worth as per last audited accounts for the year 2023-24. The audited accounts for the year 2021-22, 2022-23 were showing liability for payment of undisputed audit fees payable to predecessor auditors but were settled completely during last F.Y. 2023-24. In terms of Council General Guidelines, 2008, Chapter VII, read with relevant proviso of the said Guideline, which of the following statement is correct in respect of the aforesaid scenario?
(A) CA Isha shall be deemed to be guilty of professional misconduct as she has accepted the appointment as auditor of Air Ltd. which had not paid undisputed audit fee for the year 2021-22 and 2022-23 of predecessor auditor, though settled in F.Y. 2023-24.
(B) CA Isha would not be held guilty of professional misconduct as she has accepted the appointment as auditor of Air Ltd. which is on the verge of becoming sick unit but whose accumulated losses are not equal to or exceeding its entire net worth as per last audited accounts for the year 2023-2024.
(C) CA Isha would not be held guilty of professional misconduct as she has accepted the appointment as auditor of Air Ltd., which is not a sick unit, whose accumulated losses are not equal to or exceeding its entire net worth as per last audited accounts for the year 2023-24 and there are no unpaid undisputed audit fees of predecessor auditors.
(D) CA Isha shall be deemed to be guilty of professional misconduct as she has accepted the appointment as auditor of Air Ltd. which is on the verge of becoming sick unit and it had not paid undisputed audit fee of predecessor auditor though settled in subsequent year.

Suggested Answer and Working Notes:

Correct Answer: Option (C)

CA Isha would not be held guilty of professional misconduct as she has accepted the appointment as auditor of Air Ltd., which is not a sick unit, whose accumulated losses are not equal to or exceeding its entire net worth as per last audited accounts for the year 2023-24 and there are no unpaid undisputed audit fees of predecessor auditors.

Topics: Professional Ethics & Liabilities of Auditors, Special Features of Audit of Banks & Non-Banking Financial Companies

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