1. Hossain & Co is invited to become auditor of Meghna Foods Ltd, an established company. The board tells the firm that it will not allow the outgoing auditor, Rahman Associates, to be contacted, saying only that the change is about fees. The firm has no other means of finding out why the change is happening. What should Hossain & Co do?

A) Accept provisionally and keep asking for consent, withdrawing only if the first audit report cannot be signed without that information
B) Write to Rahman Associates anyway, because the duty to the shareholders as a body outweighs the client's right to confidentiality
C) Decline the appointment, because without consent it cannot contact the predecessor and the refusal may signal threats it cannot assess
D) Accept the appointment and report the refusal to the Registrar of Joint Stock Companies, because concealing reasons for change is an offence

Correct: C difficult IESBA Code Section 320

A proposed auditor must ask the client for permission to communicate with the existing auditor. If the client refuses and the firm cannot satisfy itself by other means about possible threats, the firm should normally decline the appointment. Contacting the predecessor without consent would breach confidentiality, and the client is legally entitled to refuse, so there is nothing to report to the Registrar. Provisional acceptance fails because the acceptance decision must be made before the work starts, not after the report stage.

2. Surma Engineering Ltd consented to its outgoing auditor, Karim & Co, replying to enquiries. Chowdhury & Co, the proposed auditor, wrote to Karim & Co on 3 March and again by registered post on 17 March, stating that it would accept after 14 days without a reply. By 31 March nothing has been received. What is the appropriate next step for Chowdhury & Co?

A) Accept now, because a lack of reply implies no adverse comment and the two letters already discharge everything the Code requires of the firm
B) Decline the appointment, because a predecessor's silence has to be treated as an adverse response to the enquiry about ethical threats
C) Report Karim & Co to ICAB for failing to reply, and defer acceptance until a disciplinary outcome clarifies why the change occurred
D) Make other reasonable enquiries about threats, such as third parties and background checks on directors, and accept only if satisfied

Correct: D difficult IESBA Code Section 320

Where the existing accountant does not reply, the proposed accountant must still take other reasonable steps to obtain information about possible threats, for example enquiries of third parties such as bankers and legal advisers, or background checks on senior management. If these steps satisfy the firm that any threats are at an acceptable level, it may accept. Declining is too strong, and accepting without further steps ignores the duty to obtain comfort by other means.

3. Mr Anwar, sole proprietor of Anwar Traders, asks Rahman & Co to perform a voluntary audit of his financial statements for a bank loan. He will prepare the statements under IFRS for SMEs and give full access, but says he will not accept responsibility for internal control because 'the auditor can run the controls'. No law requires the audit. What should Rahman & Co conclude?

A) Accept the audit and record in the letter that the firm will operate internal control, because the owner provides full access to the records
B) Not accept the audit, since acknowledged responsibility for internal control is a precondition and no law requires this engagement to proceed
C) Accept the audit but expect a qualified opinion, because missing internal control responsibility is dealt with in the auditor's report
D) Accept the audit once the owner signs a general representation, because responsibility for controls is a matter for the representation letter

Correct: B difficult ISA 210

ISA 210 requires the auditor to establish that management acknowledges and understands its responsibility for the financial statements, for such internal control as management determines necessary, and for providing access and information. If these preconditions are absent the auditor must not accept the engagement unless law requires it. Operating the client's controls would also create a self-review threat, and a representation or modified opinion cannot remedy a missing precondition.

4. Teesta Pharma (a sole proprietorship) asks Siddique & Co for a voluntary audit not required by any law. The owner insists that the terms exclude attendance at inventory counting and confirmation of balances from its two main distributors. Together these represent 70% of total assets and no alternative procedures could provide evidence. How should Siddique & Co respond?

A) Accept it as an audit and issue a disclaimer of opinion later, because the exclusions are disclosed in the engagement letter
B) Accept it as an audit and plan a qualified opinion, because the excluded balances are material but not necessarily pervasive
C) Not accept it as an audit, because a limitation expected to cause a disclaimer is unacceptable when no law requires the audit
D) Accept it as an audit if the owner signs the letter, because written agreement of scope makes the limitation acceptable to users

Correct: C complex ISA 210

Under ISA 210, if management imposes a scope limitation in the proposed terms that the auditor believes will result in a disclaimer of opinion, the auditor must not accept it as an audit engagement unless required by law. Here the excluded balances are 70% of assets with no alternative evidence, so the effect would be pervasive. Written agreement of the limitation does not change the standard, and accepting then disclaiming misleads users about the nature of the work.

5. Padma Steel Ltd has been audited by Haque & Co for three years under an engagement letter stating that its terms apply to future years unless changed. This year the company has acquired an overseas subsidiary to be audited by another firm, and has appointed a new chief financial officer. The letter does not mention other auditors. What does ISA 210 require for this recurring audit?

A) Assess whether the changes require revised terms and issue a revised letter if so; otherwise remind management of the existing terms
B) Issue a new letter for signature each year, because ISA 210 requires terms to be reconfirmed annually whatever the circumstances
C) Rely on the original letter, because a continuing letter stays binding and revision applies only if management adopts a new framework
D) Issue a new letter only if the new subsidiary is material, because a change of finance staff does not affect the agreed terms

Correct: A difficult ISA 210

On recurring audits ISA 210 requires the auditor to assess whether circumstances require the terms to be revised and whether the entity needs reminding of the existing terms. Factors include a significant change in the nature or size of the business, and new senior management. A fresh letter every year is not mandatory, and relying on the old letter ignores changes the original terms did not anticipate.

6. Noakhali Dairy (a partnership) engaged Uddin & Co for a voluntary audit because its lender required audited statements. Fieldwork is 40% complete when the lender confirms in writing that reviewed statements will now suffice, and the partners ask to change the engagement to a review. What should Uddin & Co do?

A) Agree the change but refer in the review report to the audit procedures already performed, to give users additional comfort
B) Treat the waiver as reasonable justification, agree new written terms, and issue a review report without reference to the audit
C) Refuse any change because 40% of the work is already complete, and finish the audit so that no misleading report is issued
D) Agree the change only after completing the audit work and issuing a disclaimer, because terms cannot be altered once fieldwork starts

Correct: B difficult ISA 210

ISA 210 permits a change in terms only where there is reasonable justification, such as a change in circumstances affecting the need for the service, as the lender's waiver does here. The auditor considers legal and contractual implications and the work already done, and the new terms are agreed in writing. The report for the revised engagement must not refer to the original audit or its procedures, so that readers are not misled.

7. Karnaphuli Energy Ltd asks Alam & Co for limited assurance on greenhouse gas emissions in its sustainability report. The firm has the competence and access to records, but emissions are measured using an in-house methodology that management revises every year and does not publish to users. Which conclusion is correct under ISAE 3000 (Revised)?

A) The rational purpose precondition fails, because limited assurance cannot be given on a first report prepared by management
B) The competence precondition fails, because only a practitioner with financial statement audit experience can accept this engagement
C) The subject matter is inappropriate, because non-financial emissions data cannot be the subject of an assurance engagement at all
D) The criteria are unlikely to be suitable, since an unpublished, changing method is unavailable to users, so acceptance should wait

Correct: D difficult ISAE 3000 (Revised)

ISAE 3000 (Revised) requires the practitioner to accept an assurance engagement only if, among other things, the subject matter is appropriate and the criteria are suitable and available to intended users. Criteria must be relevant, complete, reliable, neutral and understandable. A methodology that is unpublished and changes yearly fails availability and consistency, while non-financial data can be assured and limited assurance on a first report is acceptable.

8. Rupsha Metals Ltd, a prospective audit client, is owned 55% by Holdco Ltd and 45% by Mr Chowdhury directly. Holdco is owned 60% by Mrs Alam and 40% by Mr Biswas. The firm's money laundering policy requires identity verification of every individual who directly or indirectly holds 25% or more of the client. For whom must the firm verify identity?

A) Mr Chowdhury, Mrs Alam and Mr Biswas, because anyone behind a corporate shareholder must be verified whatever the holding
B) Mr Chowdhury at 45% and Mrs Alam at 33%, but not Mr Biswas, whose indirect holding of 22% is below the policy threshold
C) Mrs Alam and Mr Biswas only, because Holdco controls the client with 55% and a minority holder is outside the policy
D) Mr Chowdhury only, because he is the sole individual named on the client's own register of shareholders

Correct: B complex Money Laundering Prevention Act 2012

Indirect ownership is found by multiplying holdings through the chain: Mrs Alam holds 55% x 60% = 33%, Mr Biswas holds 55% x 40% = 22%, and Mr Chowdhury holds 45% directly. Applying the 25% threshold, Mr Chowdhury and Mrs Alam must be verified. Mr Biswas falls below the threshold, although the firm still obtains Holdco's corporate documents. Control is irrelevant to the policy, so excluding Mr Chowdhury is wrong.

9. During acceptance procedures for Jamuna Trading Ltd, a senior learns that a director deposited CU 18 million in cash from overseas as share capital, with no supporting documents and evasive answers. She suspects money laundering and proposes to ask the director directly whether the funds are criminal and to say a report may follow. What is the correct action?

A) Report internally to the anti-money laundering compliance officer without alerting the director, and suspend acceptance in the meantime
B) Report directly to the company's board and the police, because the firm has no internal reporting channel for acceptance suspicions
C) Complete acceptance and review the share capital at year end, because client confidentiality prevents disclosure outside the audit team
D) Ask the director for an explanation first and report only if the answer is unsatisfactory, because the client must be allowed to respond

Correct: A difficult Money Laundering Prevention Act 2012

A suspicion of money laundering must be reported through the firm's internal channel, normally the anti-money laundering compliance officer, who decides whether to file a report with the Bangladesh Financial Intelligence Unit. The staff member must not tip off the client, since warning the director risks an offence and prejudices any investigation. Confidentiality does not override the legal duty, and acceptance should be paused until the officer has decided.

10. Hasan & Co has six audit staff for the January to March busy period, 12 weeks at 40 hours, with 80% chargeable utilisation. Existing engagements need 2,050 hours. The new audit of Bhairab Cement Ltd is budgeted at 360 hours for a comparable client, increased by 30% for first-year opening balance work and higher risk. What should the firm conclude about accepting the engagement?

A) Spare capacity of 254 hours is 106 short of the 360 needed, so the firm must decline because shortfalls cannot be remedied by hiring
B) Spare capacity of 254 hours exceeds the 360 hours budgeted for a comparable client, so the firm can accept without further action
C) Spare capacity of 254 hours is 214 short of the 468 needed, so accept only if more qualified staff or timetable changes are secured
D) Total capacity of 2,304 hours exceeds all demands combined, so staff can be reallocated freely and no further assessment is required

Correct: C difficult ISQM 1

Capacity is 6 x 12 x 40 x 80% = 2,304 hours, less existing commitments of 2,050, leaving 254 hours. The loaded budget is 360 x 1.30 = 468 hours, so the shortfall is 214 hours. The firm's quality management system requires it to accept engagements only where it has the time and competent staff to perform them to professional standards. It should therefore secure extra resources or agree a different timetable before accepting, rather than using the unloaded budget or total capacity.

11. Having accepted the audit of Bhola Garments Ltd, engagement partner Mrs Sultana learns during planning, from a news report, that the chairman is being investigated by the Anti-Corruption Commission for diverting company funds. The firm's acceptance review had not identified this and would have led it to decline. What should Mrs Sultana do?

A) Raise the matter at the completion stage in a representation request, because planning must not be disrupted by unproven allegations
B) Continue the audit and treat the matter as a fraud risk factor only, because acceptance is final once the engagement letter is signed
C) Communicate the information promptly to the firm so that it and she can decide on the necessary action, including possible withdrawal
D) Resign in writing to the board at once, because the engagement partner alone decides on continuance and need not involve the firm

Correct: C difficult ISA 220 (Revised)

ISA 220 (Revised) requires an engagement partner who obtains information that would have caused the firm to decline the engagement, had it been known earlier, to communicate it promptly to the firm so that the firm and the partner can take the necessary action. The firm's quality management policies govern continuance or withdrawal, so unilateral resignation is wrong. Waiting for the representation stage or treating acceptance as final both fail to deal with the integrity concern when it is known.

12. A first-year audit engagement letter drafted for Sundarban Textiles Ltd states the objective and scope of the audit and the responsibilities of the auditor and of management. It omits four matters. Which omitted matter is minimum content that ISA 210 requires the letter to include?

A) The basis of fee computation and billing, which ISA 210 treats as mandatory content so that disputes about charges can be avoided
B) The expectation of written representations from management, which ISA 210 makes mandatory so that evidence can be corroborated
C) Arrangements for the use of internal audit staff, which ISA 210 requires in every letter so that the extent of reliance is clear
D) The applicable financial reporting framework, which is mandatory content, so the letter must be completed before it is issued to the client

Correct: D difficult ISA 210

ISA 210 requires the letter to include the objective and scope of the audit, the auditor's and management's responsibilities, identification of the applicable financial reporting framework, and reference to the expected form and content of the auditor's reports. Fees, internal audit arrangements and written representations are commonly included but are tailored to the client and not mandatory. The framework is therefore the only omission that makes the letter non-compliant.

13. At a tender for Kushiyara Cement Ltd, a non-listed client, Ali & Co estimates 1,100 hours at an average cost of CU 520 per hour and proposes a fee of CU 480,000 to enter the industry, expecting to recover the shortfall through advisory work later. What is the correct assessment under the IESBA Code?

A) The fee is a commercial matter, so no threat arises and recovery through later advisory work is a sufficient safeguard for quality
B) The fee is CU 92,000 below cost, and the Code treats a quote below cost as a breach of the fundamental principles that cannot be mitigated
C) The fee is 16% below cost, and the threat to objectivity is removed once the engagement partner is rotated after two years on the audit
D) The fee is CU 92,000 (16%) below cost, a self-interest threat that is acceptable only if adequate time and competent staff are assigned

Correct: D difficult IESBA Code Section 410

Estimated cost is 1,100 x CU 520 = CU 572,000, so a fee of CU 480,000 is CU 92,000, about 16%, below cost. A low quote creates a self-interest threat to professional competence and due care, because the firm may be tempted to cut work. It is not prohibited, but the firm must make the client aware of the scope and assign sufficient time and qualified staff. Recovery through later advisory work adds a further self-interest concern rather than a safeguard.

14. Under Farid & Co's acceptance policy, risk factors are scored 1 (low) to 5 (high) and weighted: integrity of management 40%, financial condition 25%, control environment 20%, complexity 15%. A weighted score below 2.5 is normal approval, 2.5 to below 3.5 needs elevated approval, and 3.5 or above means decline. A prospect scores 2, 4, 5 and 3 respectively. What is the outcome?

A) The weighted score is 3.25, so elevated approval applies and specific risk responses must be documented before acceptance
B) The weighted score is 2.4, so normal approval applies because strong integrity outweighs the other three factors in the model
C) The weighted score is 3.25, so the client falls in the decline band because any control environment score of 5 triggers refusal
D) The weighted score is 3.5, so the client falls in the decline band and the engagement cannot be accepted under the policy

Correct: A complex ISQM 1

The weighted score is 2 x 0.40 + 4 x 0.25 + 5 x 0.20 + 3 x 0.15 = 0.80 + 1.00 + 1.00 + 0.45 = 3.25. This is in the 2.5 to below 3.5 band, so elevated approval is needed and the specific risks and responses are documented, consistent with a quality management approach to accepting higher risk clients. The simple average of 3.5 ignores the weights and wrongly suggests decline.

15. Mrs Rahman has been engagement partner for Surma Cement Ltd, a listed public interest entity, for the audits of the years ended 30 June 2020 to 2026 inclusive. The firm applies the IESBA Code rotation rules for engagement partners of public interest entities (seven years on, five years cooling-off) and no stricter local rule. For which year-end is she first able to resume as engagement partner?

A) 30 June 2030, because she may act as engagement quality reviewer during cooling-off and so is out for only four years
B) 30 June 2032, because she must be out of key audit partner roles for the 2027 to 2031 audits, five consecutive years
C) 30 June 2031, because the cooling-off period includes the 2026 year in which her seventh year of service ended
D) 30 June 2029, because the cooling-off period for an engagement partner of a listed entity is three consecutive years

Correct: B complex IESBA Code Section 540

The time-on limit is seven cumulative years, and Mrs Rahman has served seven audits (2020 to 2026), so she cannot act for 2027. The cooling-off period for an engagement partner of a public interest entity is five consecutive years, covering the 2027, 2028, 2029, 2030 and 2031 audits, so the first year she may return is 2032. Serving as quality reviewer or consulting the team on technical matters is also barred during cooling-off, and the three-year period applies to the quality reviewer.

16. Habib & Co is invited to be nominated as auditor of Kishoreganj Rice Mills Ltd. The directors refuse to let the firm contact the outgoing auditor, saying the previous firm was 'difficult'. The firm has no other reason to doubt the company. What is the appropriate action under the ICAB Code of Ethics?

A) Contact the outgoing auditor anyway, as the firm's duty to the public overrides the company's wish and the outgoing auditor's confidentiality
B) Accept the nomination provisionally and keep asking for permission, since the refusal alone is not a sign that anything is wrong at the company
C) Report the directors to the Registrar of Companies, because a refusal to permit communication is a legal offence by the company's board
D) Normally decline the appointment, since the proposed auditor cannot assess possible ethical threats without the outgoing auditor's view

Correct: D difficult ICAB Code of Ethics

The client must be asked for permission to contact the outgoing auditor. If permission is refused, the proposed auditor should normally decline the appointment, and must at least consider the reasons for the refusal very carefully. Contacting the outgoing auditor without permission would breach confidentiality. The client is legally entitled to refuse, so there is nothing to report to the Registrar, and a provisional acceptance would leave the firm exposed to threats it cannot evaluate.

17. Karim & Co has the permission of Padma Ceramics Ltd to write to its outgoing auditor. Three weeks after the letter was sent, no reply has been received. The firm has already made independent enquiries about the directors and has no adverse information. What should the firm do?

A) Decline the appointment, because silence from the outgoing auditor must be treated as a warning of an unresolved professional problem
B) Take other reasonable steps to learn of threats and write again by recorded delivery, stating it will accept if no reply comes in a set time
C) Accept at once, because the permission given by the client removes the need for any further effort to obtain a response from the outgoing auditor
D) Ask the directors to obtain the information from the outgoing auditor on the firm's behalf and rely on what the directors report back

Correct: B difficult ICAB Code of Ethics

Where the outgoing auditor does not reply, the Code of Ethics requires the proposed auditor to take other reasonable steps to obtain information about possible threats and to write to the outgoing auditor by recorded delivery, stating its intention to accept if no reply is received within a specific period. The proposed auditor is then entitled to assume that silence means there is nothing adverse to say, provided its other enquiries leave the threats at an acceptable level. Relying on the directors would not be an independent source.

18. Rahman & Co has been properly appointed auditor of Bogura Cables Ltd. The outgoing auditor is owed CU 450,000 in fees and refuses to hand over the company's accounting records until it is paid. Which statement is correct?

A) Rahman & Co need not decline the appointment merely for this reason, and the outgoing auditor has no lien over a registered company's accounting records
B) Rahman & Co must decline the appointment until the fees are settled, because an unpaid predecessor makes the appointment ethically invalid
C) The outgoing auditor may keep the accounting records until it is paid, because a lien over client documents is a legal right of every professional adviser
D) Rahman & Co should pay the outstanding fees itself and recover the amount from the company, as this is required before the engagement letter is sent

Correct: A difficult ICAB Code of Ethics

Where the outgoing auditor has fees still owing, the new auditor need not decline the appointment solely for that reason. The new auditor should obtain the books and papers that belong to the client. An outgoing auditor may claim a lien over some documents because of unpaid fees, but cannot do so over the accounting records of a registered company, because the Companies Act requires those records to be available. Paying the predecessor's fees is not a requirement.

19. The audit engagement letter drafted for Sylhet Packaging Ltd lists the following: (i) the objective of the audit; (ii) the basis of the fee; (iii) the applicable financial reporting framework; (iv) arrangements for the use of internal auditors; (v) management's responsibility for providing unrestricted access to records; (vi) any restriction of the auditor's liability. Which items must be included under ISA 210?

A) Items (i), (ii), (v) and (vi), because the fee and any liability restriction are the matters where the parties most need written agreement
B) Items (ii), (iii), (iv) and (vi), because they concern the practical arrangements which a written contract should always fix
C) Items (i), (iii) and (v); items (ii), (iv) and (vi) may be included where relevant but are tailored to each client
D) All six items, because ISA 210 treats every point in a letter of engagement as a mandatory term of the audit engagement

Correct: C difficult ISA 210

ISA 210 says the engagement letter shall include the objective and scope of the audit, the auditor's responsibilities, management's responsibilities (including unrestricted access to records), the applicable reporting framework and the form of any reports. Of the six items listed, (i), (iii) and (v) are mandatory. The fee basis, the use of internal auditors and any restriction of liability are matters that may be included where relevant, and are tailored to the client.

20. Jessore Fisheries Ltd has been audited by Alam & Co for six years without an engagement letter. During the seventh year the company changes its financial reporting framework and the board is reconstituted. The audit senior says a letter is now pointless because the company is not a new client. What is the correct position?

A) A letter is only ever sent before the first audit, so none is needed for an existing client even where the circumstances have changed
B) Send one at a suitable opportunity now, and reissue any existing letter where circumstances have changed
C) A letter is unnecessary because the statutory duties of the auditor and directors are fixed by law and cannot be clarified in writing
D) The firm should send a letter only if the directors ask for one, as ISA 210 treats a letter as an optional courtesy for continuing clients

Correct: B difficult ISA 210

Auditors should send an engagement letter to all new clients soon after appointment and before the first audit, and should consider sending one to existing clients who have never received one as soon as a suitable opportunity arises. A letter should be reissued where there is a change in circumstances, such as a change of framework or of the board. Even where law sets the auditor's obligations, a letter may be informative for clients, so the view that it is unnecessary or optional is wrong.

21. Drew & Co has accepted Teesta Textiles Ltd as a new audit client and will also prepare the personal tax return of its managing director, Mr Alam. Which identity documents should the firm obtain for client due diligence?

A) For the company, a passport of each director with supporting utility bills; for Mr Alam, a certificate of incorporation and the annual return filed
B) For the company and Mr Alam alike, only the passport and utility bills of Mr Alam, as he controls the company and represents it
C) For the company, the certificate of incorporation and its registered address, shareholders and directors; for Mr Alam, a passport with utility bills
D) For the company, the latest audited accounts and the bank statements; for Mr Alam, no documents, as the audit identification covers him too

Correct: C difficult Money laundering regulations (client due diligence)

For companies, identity is checked by obtaining similar legal information from the Registrar of Companies, for example a certificate of incorporation, the registered address and a list of shareholders and directors. For an individual, the firm obtains official documents with a photograph, for example a passport supported by utility bills, to establish full name and permanent address. Because the firm will work for Mr Alam personally, his own identity must also be checked, separately from the company.

22. Rupsha & Co obtained identification documents for Surma Foods Ltd when it was onboarded on 1 July 2019. The firm resigned as auditor and the client relationship ended on 30 June 2023. Under the money laundering regulations, until what date must the identification documents be kept?

A) 30 June 2028, which is five years after the relationship with the client ended
B) 30 June 2024, which is five years after the documents were first obtained
C) 30 June 2023, since the obligation ends when the client relationship ceases
D) 30 June 2027, which is four years after the relationship ended and five from onboarding

Correct: A difficult Money laundering regulations (client due diligence)

Client identification documents must be kept for a minimum of five years and until five years have elapsed since the relationship with the client ceased. The relationship ended on 30 June 2023, so the documents must be kept until 30 June 2028. Counting from the date the documents were obtained (30 June 2024) would let them be destroyed only a year after the relationship ended, and stopping when the relationship ends would remove the retention period altogether.

23. A prospective audit client, Gazipur Steel Ltd, is controlled by one dominant shareholder, has no finance director, shows significant unexplained transactions with connected companies and has recently reported poor results. The audit firm concludes the risk is above low. Which response is appropriate?

A) Decline automatically, because any client whose risk is above low must be refused under the professional rules on acceptance
B) Accept and quote a low introductory fee to win the work, since the cost can be recovered from other clients in later years
C) Accept without further action, as risk is considered only after acceptance when the audit is planned in detail
D) Identify and document the specific risks, consider specialist reviewers, and expect fees that reflect the higher risk

Correct: D difficult ICAB Code of Ethics

Where the risk is not low, the specific risks should be identified and documented and the firm may assign specialists, such as industry specialists, as independent reviewers, with closer monitoring of the audit. Expected fees should reflect the level of risk and offer the return expected of such clients. Higher risk does not by itself require refusal, a discounted fee ignores the risk, and deferring risk assessment until planning is contrary to the acceptance process.

24. Alam & Co is invited to audit Mohona Textiles Ltd, a direct competitor of Shapla Fabrics Ltd, an existing client for which the firm provides tax advice. The partner says the matter can be ignored because audit independence concerns only audit services. Which view is correct?

A) The partner is right, because competition between two clients is a commercial matter outside the firm's acceptance procedures
B) The firm is automatically barred, because a firm cannot act for two companies that compete in the same industry
C) The firm must establish that no conflict of interest arises, taking account of services to other clients, before accepting
D) The firm should accept and disclose the competitor relationship to Mohona in the engagement letter, which cures any conflict

Correct: C difficult ICAB Code of Ethics

Conflict of interest problems can be significant. The firm should establish that no existing clients will cause difficulties as competitors of the new client, and services provided to other clients, not just audit, can be relevant. There is no automatic bar, because the firm may be able to manage the position with safeguards under the Code of Ethics. Mere disclosure in an engagement letter does not remove a real conflict.

25. Faruk & Co has accepted the nomination as auditor of Noakhali Salt Ltd and the outgoing auditor has been removed. Which action should the firm take to ensure its appointment is valid?

A) Wait for the outgoing auditor to confirm in writing that its fees have been paid, since this is a condition of a valid appointment
B) Obtain a copy of the general meeting resolution appointing the firm and see a valid notice of the outgoing auditor's resignation or removal
C) Rely on the directors' verbal confirmation that the board approved the appointment, since the board is responsible for appointing the auditor
D) Send the engagement letter and begin the audit, as the validity of the appointment is a matter for the company, not for the auditor

Correct: B difficult ICAB Code of Ethics

After accepting nomination, the new auditor should ensure that the outgoing auditor's removal or resignation was properly conducted under the relevant legislation, by seeing a valid notice of resignation or confirming proper removal. It should also ensure its own appointment is valid by obtaining a copy of the resolution passed at the general meeting appointing it. Unpaid fees do not invalidate the appointment, verbal board confirmation is not evidence of a members' resolution, and the auditor is expected to check validity.