Which audit out of the following would not be regarded as one audit for the purposes of section 224(IB)?
|a) Audit of one branch each of two different companies|
b) Joint audit
c) Audit head office & branches
d) Audit of one or more branches of a company
The Correct Answer Is:
a) Audit of one branch each of two different companies
Why is option (a) the correct answer?
The provision you’re referring to, Section 224(IB), pertains to the “Number of audits a chartered accountant can undertake.” This section deals with the limits on the number of audits that a practicing chartered accountant can handle.
(a) Audit of one branch each of two different companies:
This scenario involves auditing one branch each of two different companies. Here, while it’s two separate entities being audited, the branch-level audit doesn’t fall under the category of separate audits for the purpose of section 224(IB).
It’s still considered as two distinct audits of the same company, just at different branches. Hence, this would count as one audit under the provision.
Now, let’s address the other options:
Let’s delve deeper into the other options provided and understand why they are considered as one audit under the purview of section 224(IB).
(b) Joint audit:
A joint audit is a situation where two or more auditors are appointed to conduct the audit of a company. It’s a collaborative effort where multiple auditors work together to examine the financial statements and records of the company. Despite involving multiple auditors, this arrangement is considered as one audit engagement for each auditor participating.
The rationale behind considering a joint audit as a single engagement lies in the fact that it’s an integrated process where each auditor’s work contributes to a unified audit report. The scope of work is shared among the auditors involved, and the end result is a consolidated audit opinion, not separate opinions by each auditor.
Hence, for the purposes of section 224(IB), a joint audit is regarded as one audit assignment per participating auditor.
(c) Audit head office & branches:
When conducting an audit that encompasses both the head office and branches of a company, it constitutes a holistic examination of various segments of a single entity. The audit involves scrutinizing the financial records, operations, and compliance aspects of the central headquarters as well as its branches.
In such cases, the audit is seen as one cohesive engagement rather than separate audits. The objective is to assess the financial health, control mechanisms, and compliance standards across the entire organizational structure.
Even though it covers multiple locations or divisions, it’s a unified audit assignment aimed at evaluating the overall entity’s performance and compliance.
(d) Audit of one or more branches of a company:
This option involves auditing one or more branches of the same company. Similar to option (a), this scenario doesn’t constitute separate audits for the purpose of section 224(IB). Instead, it’s part of the same audit engagement targeting different branches of the company.
The rationale behind considering branch audits as a single engagement lies in the interconnectedness and common ownership/control of these branches under the same company entity. Auditing these branches involves assessing various operational and financial aspects but within the same organizational structure.
Therefore, it’s regarded as one audit assignment for the purposes of section 224(IB).
Understanding these distinctions is crucial because while the audits might involve multiple locations, divisions, or auditors, they are seen as part of a unified assessment of a single entity, which aligns with the intent of section 224(IB) to regulate the number of audits undertaken by practicing chartered accountants.
- When restrictions that significantly affect the scope of the audit are imposed by the client the auditor generally should issue which of the following opinion?
- The inventory consists of about one per cent of all assets. The client has imposed restriction on auditor to prohibit observation of stock take. The auditor cannot apply alternate audit procedures.