Auditor Appointment, Independence and Internal or Tax Audit — Choosing the Engagement

Keep management responsibility and auditor responsibility distinct. An internal auditor who designed a control may face objectivity considerations when reviewing it. Non-audit services can create independence threats for the external auditor and require assessment under the professional code.

An NPO asks its statutory auditor to certify donor expenditure and design its accounting controls. The firm first identifies separate scope and reporting criteria, evaluates competence and independence, and determines which services it can lawfully accept. A single engagement letter saying “all audit work” is insufficient to explain the different responsibilities.

Retain appointment, acceptance, conflict checks, engagement terms, information requirements and communication with those charged with governance. Sector entities may need additional regulator formats or reporting; obtain the current instructions rather than reuse a bank, cooperative or insurance template interchangeably.

Issue the report appropriate to the engagement and preserve its criteria and limitations. Track internal-audit recommendations separately from an external opinion. Check current eligibility, rotation and prescribed reporting requirements for the entity.

A statutory audit gives an independent opinion on financial statements under the applicable framework. Internal audit examines selected controls, risks or operations under an agreed mandate. A tax audit or tax-compliance review examines the tax treatment and supporting records for its particular purpose. The reports are different products, and one does not automatically discharge the obligations of another.

Before appointment, identify the entity's legal form, governing Act, shareholder or member requirements and any sector regulator. Confirm the appointment authority, the auditor's eligibility, required professional authorisation and the period covered. The engagement letter should describe responsibilities, scope, reporting framework, intended users and access to records. A fee quotation alone does not establish those terms.

Review relationships, financial interests, previous services and other circumstances that can create threats to independence. Preparing accounts, advising management and auditing the resulting statements can raise different considerations. The assessment should address the actual services and applicable professional rules rather than assuming that separate staff members resolve every concern.

Suppose a Nepal company asks its bookkeeping provider to become statutory auditor. The proposed auditor assesses the prior work, management responsibilities, ethical restrictions and available safeguards before accepting. If the engagement cannot be performed with the required independence, a signed waiver from the client does not make the problem disappear. Preserve the conclusion and revisit it when relationships or services change.

Management remains responsible for the records, accounting choices and financial statements. The auditor's role is to obtain evidence and report under the applicable standards. An internal-control recommendation should identify the issue and action owner without suggesting that the auditor has taken over management's control responsibilities.

Where a company needs both a statutory audit and help preparing a tax computation, define the separate work, permitted scope and review responsibility. An audit opinion does not promise that every tax position will be accepted by IRD. Keep the statutory appointment, engagement terms, independence conclusion and any separate advisory agreement together so that the resulting reports can be understood in context.