Question

During its prior tax year, your client acquired from a third party a license granted by the federal government. The client tells you that he/she believes that the license has a useful life of 8 years and produces a report, prepared by another firm, supporting that useful life. You look at the report and do not believe that it is very convincing. Discuss how you would handle this situation keeping in mind any ethical and professional considerations. What are the penalty risks to your client and your own firm if you rely on this report?

Answer 1

As an auditor, the responsibility towards the client is to act in good faith and place due concern on the accounts of the company. In case the client acquires a license by the federal government,

The auditor shall evaluate various aspects of such license,

• Its use for client
• Its useful life
• Way of Acquisition
• Its cost, residual value, carrying value, etc:

Further, if the auditor is not satisfied with third party reports, on such license, he has the right to third party confirmation, or he can discuss it with the third party, which prepared the report, on the grounds of valuation and methods opted by such third party.

In case the auditor does not exercise due care and professional competence in such matter, the auditor shall be held liable to the client for any discrepancy held. The client shall face issues while accounting for such intangible assets under IAS 38, and auditor shall supervise and guide its client on such matters.