SA 220 – Quality Control for an Audit of FS

Question 1

R & Co has been appointed as an auditor of PK Ltd for the FY 2016-17.

CA. K, one of the partners of M/s R & Co, completed entire routine audit work by 29 May 2017. Unfortunately, on the very next morning, while roving towards office of PK Ltd to sign final audit report, he met with a road accident and died.

CA. R, another partner of M/s R & Co, therefore, signed the accounts of PK Ltd, without reviewing the work performed by CA. K.

Advise, whether CA. R is right in expressing an opinion on financial statements the audit of which is performed by another auditor.

Answer 1

Review of Work performed by others:

• As per SA 220, “Quality Control for an Audit of FS”, the engagement partner shall take responsibility for reviews being performed in accordance with the firm’s review policies and procedures. Review procedures consists of the considerations, whether,

1. the work has been performed in accordance with professional standards and regulatory and legal requirements;
2. Significant matters have been raised for further consideration;
3. Appropriate consultations have taken place and the resulting conclusions have been documented and implemented;
4. The work performed supports the conclusions reached and is appropriately documented;
5. The evidence obtained is sufficient and appropriate to support the auditor’s report; and
6. The objectives of the engagement procedures have been achieved.

• When the auditor delegates work to assistants or uses work performed by other auditors/experts he will continue to be responsible for forming and expressing his opinion on the FS. However, he will be entitled to rely on the 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.

• The auditor should carefully direct, supervise and review work delegated to assistants. He should obtain reasonable assurance that work performed by other auditors/experts and assistants is adequate for his purpose.
• In the instant case, Mr. K, a partner of the firm had completed routine audit work and died before signing audit report. Mr. R another partner of the firm has signed the accounts of PK Ltd, relying on the work performed by Mr. K.

Conclusion: CA R is allowed to sign the audit report, though, will be responsible for expressing the opinion. He may rely on the work performed by CA K provided he further exercises adequate skill and due care and review the work performed by him.