Module: | Statutory Audit, NFRA & ICAI Standards
Q71: Consider the following statements regarding the revised Code of Ethics approved by the ICAI Council, scheduled to take effect in April 2026:
1. The revised Code introduces stricter provisions regarding an audit firm's fee dependency on a single client to safeguard the auditor's independence.
2. The updated framework provides specific, clarified obligations for professionals undertaking non-audit services and emerging assurance engagements (such as ESG).
3. The revised Code modernizes the ethical boundaries concerning professional visibility and networking among chartered accountant firms.
Which of the above statements is/are correct?
2. The updated framework provides specific, clarified obligations for professionals undertaking non-audit services and emerging assurance engagements (such as ESG).
3. The revised Code modernizes the ethical boundaries concerning professional visibility and networking among chartered accountant firms.
Which of the above statements is/are correct?
✅ Correct Answer: D
🎯 Quick Answer:
D. All statements 1, 2, and 3 are correct.Structural Breakdown: Statement 1 is correct; fee dependency (where a firm relies on one massive client for survival) creates an undeniable self-interest threat, which the new Code aggressively addresses.
Statement 2 is correct; as assurance expands into non-financial realms like sustainability, the Code was updated to ensure ethical boundaries apply to these new services.
Statement 3 is correct; rules regarding how CA firms can network, advertise, and establish global alliances were modernized to fit the 2026 business landscape.
Historical/Related Context: The ICAI periodically overhauls its Code to stay aligned with the International Ethics Standards Board for Accountants (IESBA). The 2026 update directly tackles the commercial realities of modern auditing, where consulting revenues often dwarf pure audit fees.
Causal Reasoning: If an audit firm derives 40% of its total annual revenue from a single corporate group, the auditor will inevitably lack the courage to issue an adverse opinion against them, rendering the audit useless.
Strict fee dependency limits are the only way to mathematically enforce independence.