Ethics and Terms of Audit Engagements
Domain 11 covers the ICAI Code of Ethics and SA 210: the rules that decide whether you may accept the work at all.
Fundamental principles and threats
Integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. Threats are self-interest, self-review, advocacy, familiarity and intimidation; safeguards include independent reviews, rotation of staff, disclosure, and declining the engagement where no safeguard is adequate.
Statutory gateways
Section 141 disqualifications, such as indebtedness above 5 lakh, a business relationship, a relative holding securities, or full-time employment elsewhere, bar appointment. Section 144 prohibits specified non-audit services to the audited company, including accounting and book-keeping, internal audit, design of financial information systems, actuarial and investment advisory services, and management services. Under the ceiling, a chartered accountant, or a partner in a firm, cannot hold more than 20 company audits, excluding one person companies, dormant companies, small companies and private companies with paid-up capital below 100 crore. Rotation applies to listed and prescribed classes: five years for an individual, two terms of five years for a firm, with a five-year cooling-off.
Engagement letter (SA 210)
Agree scope, responsibilities, form of report and fees before starting, and communicate in writing with the previous auditor before accepting.
Worked example
A firm is offered the internal audit of a company it already audits. Reasoning: Section 144 bars the statutory auditor from providing internal audit to the same company; this is a self-review threat that cannot be adequately safeguarded, so the firm must decline the internal audit or resign the statutory audit.
Traps
- Accepting without communicating with the previous auditor, a misconduct under Clause 8, Part I, First Schedule.
- Overlooking that the ceiling applies to the individual and each partner in practice.
- Treating a low fee as automatically unethical; the test is whether quality is compromised.