Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

Give your comments on the following cases: (5 Marks each December 2016)
a) CA. Oli has been appointed as Tax auditor for the year 2072/73 ABC Private Limited. He finds that the company has wrongly claimed excess carry-forward loss of Rs.1 crore in the previous year‟s (2071/72) tax return in which he was not associated at all. This has no effect in the tax return for the year 2072/73.
b) CA. Ram was appointed as auditor of Alpha Traders Ltd. for 2071/72 for a fee of Rs.300,000. The turnover for that year was Rs.3 billion, 90 % of the revenue was from sale of electronic products of “Samsung” for which the company is authorized distributor. In the early month of 2072/73, the authorized distributorship of “Samsung” was terminated. Alpha Traders has requested CA Ram to accept the audit of 2072/73 for a fee of Rs.100,000 as there would be negligible transactions as compared to previous year and the time to conduct that audit shall be only 1/3 as compared to previous year audits.
a) Answer
Section 300.6 and 360.13 of Code of Ethics 2018 deals with tax practice professional accountants. It states that when a professional accountant learns of a material error or omission in a tax return for previous year (with which the professional accountant may or may not have been associated), the client should be advised promptly to disclose the fact to tax authority. However, CA Oli is not obliged to inform the tax authorities.

CA Oli should inform the client that it is not possible to act for them in connection with that return or other related information submitted to the authorities. Since, the prior error does not have any effect in tax return for the year in which he is associated, he may continue professional relation with client but all reasonable steps should be taken to ensure that the error is not repeated in subsequent returns.
b) Answer
As per section 330.3-A2, A professional accountant might quote whatever fee is considered appropriate. Quoting a fee lower than another accountant is not in itself unethical. However, the level of fees quoted creates a self-interest threat to compliance with the principle of professional competence and due care if the fee quoted is so low that it might be difficult to perform the engagement in accordance with applicable technical and professional standards.

It means professional accountant in public practice shall not quote lower fees than the previously paid fees without justifiable reasons of reduction in the volume of transactions or time involvement.

In the given case above, it is seen that the company has lost major distributorship securing 90% of its revenue and hence the work volume and time involvement is expected to decrease drastically. Hence, CA. Ram may accept the lower fees as compared to previous year on those justifiable grounds. However, it should be taken care that the quality of work shall not be impaired and that due care will be applied to comply with all professional standards and quality control procedures.

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