First Notes - 5 April 2017

ICAI defers standards on auditing to 1 April 2018

ICAI defers applicability of new/revised standards on auditing to 1 April 2018

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Background

On 15 January 2017, the International Auditing and Assurance Standards Board (IAASB) issued new and revised auditor reporting standards and related conforming amendments (International Auditing Standards (ISAs)). These became effective for audits of financial statements for periods ending on or after 15 December 2016.

In line with international requirements, the Institute of Chartered Accountants of India (ICAI) revised its Standards on Auditing (SAs) relating to auditor reporting on 17 May 2016. The new requirements aim at enhancing the informational value of the auditor’s report. These standards were to become applicable for audits of financial statements for periods beginning on or after 1 April 2017.

Following table provides the suite of SAs that are new/revised:

New and revised SAs Description of changes and scope

SA 700 (Revised), Forming an Opinion and Reporting on Financial Statements

Revisions to establish new required reporting elements, and to illustrate these new elements through an example in the auditor’s report.

SA 701, Communicating Key Audit Matters in the Independent Auditor’s Report

New standard to establish requirements and guidance for the auditor’s determination and communication of Key Audit Matters (KAMs).

The KAMs which are selected from matters communicated to those charged with governance, are required to be communicated in the auditor’s reports for audits of financial statements of listed entities.

SA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s Report

Clarification of how the new reporting elements are affected when expressing a modified opinion.

SA 706 (Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report

Clarification of the relationship between the emphasis of matter and other matter paragraphs and KAM section of the auditor’s report.

Source: KPMG in India’s analysis, 2017

Overview of key changes in the auditor’s review

  • For listed entities, the most significant change introduced in the auditor’s report is the inclusion of description of KAM that are selected from matters communicated with those charged with governance.
  • Auditor’s report issued on full complete sets of general purpose financial statements will be reordered, with an audit opinion required to be placed first.
  • Descriptions of the responsibilities of management and the auditor will be revised.
  • Descriptions of the responsibilities of management and the auditor will be revised.
  • Disclosure of other information not received before report date and of related auditor responsibility.

New development

Concerns were raised by the members of ICAI over the practical implementation of SAs and therefore, requested ICAI to consider the deferment of applicability of these SAs by a period of one year.

The ICAI considered the matter and concluded that there is a need to provide adequate training and implementation guidance to the members of ICAI on these SAs in order to equip them with the requirement and to implement these SAs appropriately. Additionally, it took note of the fact that the issue of Implementation Guide and training programmes may take considerable time.

Accordingly, ICAI has deferred the effective date/applicability date of SAs by one year (through its announcement dated 1 April 2017). Accordingly, these SAs would be effective/applicable for audits of financial statements for periods beginning on or after 1 April 2018.

The extant SAs 700, 705 and 706 will continue to apply.

Our comments

The announcement by ICAI is quite timely as most of the entities would be in a process of finalising their annual financial results and getting them audited by the auditors. The ICAI has not deferred SA, 260 (revised), Communication with Those Charged with Governance and SA 570 (revised), Going Concern. Accordingly, these two SAs will be applicable to all companies from 1 April 2017.

It is important to note that the entities which are listed abroad and required to follow ISAs would still be covered by the amended ISAs.

To access the text of ICAI’s announcement, please click here.

 

© 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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