Q1. Assume that you are an independent auditor who runs your own auditing firm. Salma Company was your client last year who engage another independent auditor this year because of some issues on auditing fees. You know that Salma Company is having less profit now because of competition with Khalsa Company. Because of this reason, Salma Company wants to buy Khalsa Company. Just two months ago, Hajir Company became your new client. Hajir Companys previous auditor suddenly had a heart attack, so the company came to you for audit services and you accepted them. Today, Hajir Companys director came to you to discuss that they also intend to buy Khalsa Company. The director knows that there is another company who wants to buy Khalsa Company too, but they are not aware that it is Salma Company and they also dont know that you were Salma Companys previous auditor. When the meeting is over, you start to feel uncomfortable. Since Hajir Company is your new client, you want to help them and provide good service to them. But you realise that you also possess confidential information concerning the plans of your previous client, Salma Company. You are aware of Salma Companys problems and you know it will help Salma Company to recover profits if they will acquire Khalsa Company.

**Required: Explain your answer to the following questions:

1. Which fundamental ethical principles in ISA 200 will be affected in this scenario? You can

explain more than one ethical principle, if applicable.

2. Can you disclose confidential information in this scenario? Explain your opinion. 3. How will you protect your reputation as an independent auditor?

3. What could be the possible course of action?

Auditing Questions