Module: | Specialized Audits, Tech & ESG Disclosures
Q92: Consider the following statements regarding auditor independence under the revised 13th Edition of the ICAI Code of Ethics (converged with the 2024 IESBA Code):
1. The 2026 Code explicitly prohibits an audit firm from accepting the statutory audit of a Public Interest Entity (PIE) if it had previously provided a non-assurance service that created a self-review threat.
2. The revised Code converged with the 2024 edition of the International Ethics Standards Board for Accountants (IESBA) framework, integrating new global standards specifically for sustainability assurance.
3. The scope of the ethical obligations regarding Responding to Non-Compliance with Laws and Regulations (NOCLAR) during an audit was officially extended to include the material subsidiaries of listed entities.
Which of the above statements is/are correct?
2. The revised Code converged with the 2024 edition of the International Ethics Standards Board for Accountants (IESBA) framework, integrating new global standards specifically for sustainability assurance.
3. The scope of the ethical obligations regarding Responding to Non-Compliance with Laws and Regulations (NOCLAR) during an audit was officially extended to include the material subsidiaries of listed entities.
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; an absolute prohibition was introduced to prevent an auditor from auditing their own prior consulting work for highly sensitive PIEs (like banks or massive listed companies). Statement 2 is correct; as ESG reporting becomes mandatory, the ICAI proactively adopted the IESBA's specific ethical boundaries for sustainability assurance.
Statement 3 is correct; expanding NOCLAR to material subsidiaries ensures auditors cannot ignore illegal acts committed deep within a corporate group structure.
Historical/Related Context: Global audit failures frequently trace back to the "Self-Review Threat"—where an audit firm first designs a company's internal accounting software for a massive consulting fee, and then sends its audit wing to verify if that software works correctly.
Causal Reasoning: If an auditor previously provided non-assurance consulting that impacted the financial numbers, human psychology makes it virtually impossible for them to objectively criticize or flag those numbers as fraudulent during the subsequent statutory audit.
The strict prohibition eliminates this conflict.