CA X & Co.

CA X & Co. is proposed to be appointed as statutory auditor of Delta Ltd. for FY 2026-27.

CA Y & Co. was the previous auditor.

Before accepting the appointment, CA X communicates with CA Y in writing. During the communication, X learns that Y had qualified the financial statements of Delta Ltd. for FY 2025-26 on the ground that certain expenses had allegedly been capitalised incorrectly.

After examining the relevant records and discussing the matter with management, X forms a preliminary view that Y’s qualification was not justified and that the accounting treatment adopted by Delta Ltd. was appropriate.

The following additional facts are available:

X has communicated with Y before accepting the appointment.
Y has not objected to X’s appointment.
X is replacing Y as the statutory auditor.
X’s own assessment suggests that the basis of Y’s qualification may not have been justified.
The appointment is not a parallel appointment in which two auditors are continuing simultaneously.

The engagement partner states:

“Since the previous auditor’s report contained a qualification with which we disagree, we cannot accept the appointment unless the previous auditor withdraws the qualification.”

Which ONE of the following is most appropriate?

A. The partner is correct because an incoming auditor cannot accept an appointment where the previous auditor has expressed a modified opinion on the financial statements.

B. The partner is incorrect because disagreement with the previous auditor’s reporting conclusion does not itself prevent acceptance once the required communication with the previous auditor has been made.

C. The partner is correct because an incoming auditor must obtain written confirmation from the previous auditor that no professional differences remain before accepting the appointment.

D. The partner is incorrect only where the incoming auditor is appointed in a parallel position; in a replacement position, the previous auditor’s qualification continues to restrict acceptance.