This consideration shall be in addition to responding to the
matter in the context of the group audit in accordance with the provisions of this section.
If the non-compliance or suspected non-compliance might be
relevant to one or more of the components specified in paragraph R360.17(a) and (b), the group engagement partner shall take steps to have the matter communicated to those performing work at the components, unless prohibited from doing so by law or regulation. If necessary, the group engagement partner shall arrange for appropriate inquiries to be made (either of management or from publicly available information) as to whether the relevant component(s) specified in paragraph R360.17(b) is subject to audit and, if so, to ascertain to the extent practicable the identity of the auditors. 360.18 A1 The purpose of the communication is to enable those responsible for work at the components to be informed about the matter and to determine whether and, if so, how to address it in accordance with the provisions in this section.
The communication requirement applies regardless of
whether the group engagement partner’s firm or network is the same as or different from the firms or networks of those performing work at the components.
Determining Whether Further Action Is Needed
The chartered accountant shall assess the appropriateness of
the response of management and, where applicable, those charged with governance. 360.19 A1 Relevant factors to consider in assessing the appropriateness of the response of management and, where applicable, those charged with governance include whether: • The response is timely. • The non-compliance or suspected non-compliance has been adequately investigated. • Action has been, or is being, taken to rectify, remediate or mitigate the consequences of any non-compliance. • Action has been, or is being, taken to deter the commission of any non-compliance where it has not yet occurred. • Appropriate steps have been, or are being, taken to reduce the risk of re-occurrence, for example, additional controls or training. • The non-compliance or suspected non-compliance has been disclosed to an appropriate authority where appropriate and, if so, whether the disclosure appears adequate.
In light of the response of management and, where
applicable, those charged with governance, the chartered accountant shall determine if further action is needed in the public interest. 360.20 A1 The determination of whether further action is needed, and the nature and extent of it, will depend on various factors, including: • The legal and regulatory framework. • The urgency of the situation. • The pervasiveness of the matter throughout the client. • Whether the chartered accountant continues to have confidence in the integrity of management and, where applicable, those charged with governance. • Whether the non-compliance or suspected non- compliance is likely to recur. • Whether there is credible evidence of actual or potential substantial harm to the interests of the entity, investors, creditors, employees or the general public. 360.20 A2 Examples of circumstances that might cause the chartered accountant no longer to have confidence in the integrity of management and, where applicable, those charged with governance include situations where: • The accountant suspects or has evidence of their involvement or intended involvement in any non- compliance. • The accountant is aware that they have knowledge of such non-compliance and, contrary to legal or regulatory requirements, have not reported, or authorized the reporting of, the matter to an appropriate authority within a reasonable period.
The chartered accountant shall exercise professional
judgment in determining the need for, and nature and extent of, further action. In making this determination, the accountant shall take into account whether a reasonable and informed third party would be likely to conclude that the accountant has acted appropriately in the public interest. 360.21 A1 Further action that the chartered accountant might take includes: • Disclosing the matter to an appropriate authority as specified under respective law. • Withdrawing from the engagement and the professional relationship where permitted by law or regulation. 360.21 A2 Withdrawing from the engagement and the professional relationship is not a substitute for taking other actions that might be needed to achieve the chartered accountant’s objectives under this section. However, there might be limitations as to the further actions available to the accountant. In such circumstances, withdrawal might be the only available course of action.
The chartered accountant shall in all circumstances, including
where he has withdrawn from the professional relationship pursuant to paragraphs R360.20 and 360.21 A1, on request by the proposed accountant pursuant to paragraph R320.8, provide all relevant facts and other information concerning the identified or suspected non-compliance to the proposed accountant. 360.22 A1 The facts and other information to be provided are those that, in the predecessor accountant’s opinion, the proposed accountant needs to be aware of before deciding whether to accept the audit appointment. Section 320 addresses communications from proposed accountants. 360.23 A1 As assessment of the matter might involve complex analysis and judgments, the chartered accountant might consider: • Consulting internally. • Obtaining legal advice to understand the accountant’s options and the professional or legal implications of taking any particular course of action. • Consulting on a confidential basis with the Institute.
Determining Whether to Disclose the Matter to an Appropriate Authority
360.24 A1 Disclosure of the matter to an appropriate authority would be precluded if doing so would be contrary to law or regulation.
Otherwise, the purpose of making disclosure is to enable an
appropriate authority to cause the matter to be investigated and action to be taken in the public interest. 360.24 A2 The determination of whether to make such a disclosure depends in particular on the nature and extent of the actual or potential harm that is or might be caused by the matter to investors, creditors, employees or the general public. For example, the chartered accountant might determine that disclosure of the matter to an appropriate authority is an appropriate course of action if: • The entity is engaged in bribery (for example, of local or foreign government officials for purposes of securing large contracts). • The entity is regulated and the matter is of such significance as to threaten its license to operate. • The entity is listed on a securities exchange and the matter might result in adverse consequences to the fair and orderly market in the entity’s securities or pose a systemic risk to the financial markets. • It is likely that the entity would sell products that are harmful to public health or safety. • The entity is promoting a scheme to its clients to assist them in evading taxes. 360.24 A3 The determination of whether to make such a disclosure will also depend on external factors such as: • Whether there is an appropriate authority that is able to receive the information, and cause the matter to be investigated and action to be taken. The appropriate authority will depend on the nature of the matter. For example, the appropriate authority would be the Institute in case of complaint of professional misconduct against a chartered accountant, whether in practice or in service, Securities and Exchange Board of India (SEBI) in the case of fraudulent financial reporting or an environmental protection agency e.g.
Environment Pollution (Prevention & Control) Authority
for National Capital Region of Delhi in the case of a breach of environmental laws and regulations. • Whether there exists robust and credible protection from civil, criminal or professional liability or retaliation afforded by legislation or regulation, such as under whistle-blowing legislation or regulation. • Whether there are actual or potential threats to the physical safety of the chartered accountant or other individuals.
If the chartered accountant determines that disclosure of the
non-compliance or suspected non-compliance to an appropriate authority, if required by law, is an appropriate course of action in the circumstances, that disclosure is permitted pursuant to paragraph R114.3 of the Code. When making such disclosure, the accountant shall act in good faith and exercise caution when making statements and assertions.
The accountant shall also consider whether it is appropriate to
inform the client of the accountant’s intentions before disclosing the matter.
In exceptional circumstances, the chartered accountant might
become aware of actual or intended conduct that the accountant has reason to believe would constitute an imminent breach of a law or regulation that would cause substantial harm to investors, creditors, employees or the general public. Having first considered whether it would be appropriate to discuss the matter with management or those charged with governance of the entity, the accountant shall exercise professional judgement and determine whether to disclose the matter immediately to an appropriate authority in order to prevent or mitigate the consequences of such imminent breach.
In relation to non-compliance or suspected non-compliance
that falls within the scope of this section, the chartered accountant shall document: • How management and, where applicable, those charged with governance have responded to the matter. • The courses of action the accountant considered, the judgments made and the decisions that were taken, having regard to the reasonable and informed third party test. • How the accountant is satisfied that the accountant has fulfilled the responsibility set out in paragraph R360.20. 360.27 A1 This documentation is in addition to complying with the documentation requirements under applicable auditing standards. SAs, for example, require a chartered accountant performing an audit of financial statements to: • Prepare documentation sufficient to enable an understanding of significant matters arising during the audit, the conclusions reached, and significant professional judgments made in reaching those conclusions; • Document discussions of significant matters with management, those charged with governance, and others, including the nature of the significant matters discussed and when and with whom the discussions took place; and • Document identified or suspected non-compliance, and the results of discussion with management and, where applicable, those charged with governance and other parties outside the entity.
PART 4A – INDEPENDENCE FOR AUDIT AND REVIEW ENGAGEMENTS
Section 400 Applying the Conceptual Framework to Independence
Section 540 Long Association of Personnel (Including Partner Rotation) Section 600 Provision of Non-Assurance Services to an Audit Client ... 225 Section 800 Reports on Special Purpose Financial Statements that Include a Restriction on Use and Distribution (Audit and INDEPENDENCE STANDARDS (PARTS 4A AND 4B) PART 4A – INDEPENDENCE FOR AUDIT AND REVIEW ENGAGEMENTS
