NMQs for CA FINAL Nov 2016 Paper -3 AAPE Topic SA 220

Very Important  Question
Question
M/s Sureshchandra & Co. has been appointed as an auditor of SC Ltd. for the
financial year 2014-15. CA. Suresh, one of the partners of M/s Sureshchandra &
Co., completed entire routine audit work by 29th May, 2015. Unfortunately, on the
very next morning, while roving towards office of SC Ltd. to sign final audit report,
he met with a road accident and died. CA. Chandra, another partner of M/s
Sureshchandra & Co., therefore, signed the accounts of SC Ltd., without reviewing the work performed by CA. Suresh. State with reasons whether CA. Chandra is right in expressing an opinion on financial statements the audit of which is performed by another auditor.
Answer
Relying on Work Performed by Another Auditor: As per SA 220 “Quality Control for an Audit of Financial Statements”, an engagement partner taking over an audit
during the engagement may apply the review procedures such as the work has
been performed in accordance with professional standards and regulatory and legal requirements; significant matters have been raised for further consideration; appropriate consultations have taken place and the resulting conclusions have been documented and implemented; there is a need to revise the nature, timing and extent of work performed; the work performed supports the conclusions reached and is appropriately documented; the evidence obtained is sufficient and
appropriate to support the auditor’s report; and the objectives of the engagement procedures have been achieved.
Further, one of the basic principles, which govern the auditor’s professional
responsibilities and which should be complied with wherever an audit is carried, is that when the auditor delegates work to assistants or uses work performed by other auditor and experts, he will continue to be responsible for forming and expressing his opinion on the financial information. However, he will be entitled to rely on work performed by others, provided he exercises adequate skill and care and is not aware of any reason to believe that he should not have so relied. This is the fundamental principle which is ethically required as per Code of Ethics.
However, the auditor should carefully direct, supervise and review work delegated. He should obtain reasonable assurance that work performed by other
auditors/experts and assistants is adequate for his purpose.

In the given case, all the auditing procedures before the moment of signing of final report have been performed by CA. Suresh. However, the report could not be signed by him due to his unfortunate death. Later on, CA. Chandra signed the
report relying on the work performed by CA. Suresh. Here, CA. Chandra is allowed
to sign the audit report, though, will be responsible for expressing the opinion. He may rely on the work performed by CA. Suresh provided he further exercises
adequate skill and due care and review the work performed by him.