RECENT AMENDMENTS IN AUDITING STANDARDS : RECENT AMENDMENTS IN AUDITING STANDARDS Presented by: Mukesh Thakur Purposes of Changes in Standards : Purposes of Changes in Standards To keep alignment with the International Practice.
To converge with International Standards on Auditing. AGENDA : AGENDA Slide 4: Standards on Quality Control (SQCs) SQC 1 Quality control for Firms that Perform Audit and Reviews of Historical Financial Information, and other Assurance and Related Services Engagements : SQC 1 Quality control for Firms that Perform Audit and Reviews of Historical Financial Information, and other Assurance and Related Services Engagements Purpose of introduction
There was no guidelines to the firms responsibilities for its system of quality control for the services provided by them.
There has been different standards issued a on different aspects. Hence, there is need of one standard which correlate and harmonize each standard.
SQC – 1 took birth to mitigate the above requirements.
This standard will play a role as Mother Standard. Scope and Applicability : Scope and Applicability The standard is to apply on Chartered Accountant Firms and Proprietorship.
This will cover all the services falling under the engagement Standards.
The effective date of the standard is April 1, 2009. Objective of the Standard : Objective of the Standard The firm should establish a system of quality control designed to provide it with reasonable assurance that
The firm and its personnel comply with professional standards and regulatory and legal requirements and
That the Reports issued by the firm or engagement partner(s) are appropriate in the circumstances. Elements of a system of quality control : Elements of a system of quality control Leadership Responsibilities for quality within the firm : Leadership Responsibilities for quality within the firm CEO or managing partner of the firm should establish policies and procedures designed to promote an internal culture based on the recognition that the quality is essential.
Any person(s) assigned the operational responsibilities should be sufficient and appropriate experience and ability and the necessary authority to assume the responsibility. Ethical Requirements : Ethical Requirements The policies and procedure of the firm should be designed to provide reasonable assurance that the firm and its personnel comply relevant ethical requirement as prescribed in Chartered Accountants Act, 1949. These includes
Professional Competence and due care
(ICPOP) Ethical Requirements cont… : Ethical Requirements cont… Ethical Requirements cont… : Ethical Requirements cont… Independence - The standard has laid down detailed guidelines to ensure the independence of the firm, personnel or others as required by the code. These can be summarized as follows
Policies designed by the firm should contain
Communication of independence requirement to personnel or others,
identity and removal of threats to independence
The policy designed by the firm should require
The engagement Partner should provide relevant information about the engagement to firm.
The accumulation and communication of relevant information to appropriate personnel so that threats of independence can be readily identified and resolved.
At least annually, the firm should obtain written confirmation of compliance with its policies and procedure on independence from all firm personnel required to be independent. Ethical Requirements cont… : Ethical Requirements cont… The standard discusses familiarity threats that arises when the firm uses the same senior personnel on assurance engagement for a long period of time. The firm should reduce this threats to acceptable level. In case of audit of listed companies, engagement partner should be rotated after a pre-defined period not more than 7 years. Acceptance and continuance of client relationships and specific requirements : Acceptance and continuance of client relationships and specific requirements Acceptance and continuance of client relationships and specific requirements cont. : Acceptance and continuance of client relationships and specific requirements cont. Examples of matters that should be ensured to check integrity of the client
Business reputation of clients Key management Personnel (KMPs), Owners, related parties etc.
The nature of the client business
Attitude of KMPs etc. towards such matters as aggressive interpretation of Accounting Standards and internal control Environment.
Whether the client is aggressively concerned with maintaining the firms fees as low as possible.
Indications of an inappropriate limitation of scope of work.
Information that the client might be involved in money laundering or other criminal activities.
The reason for proposed appointment of firm and non reappointment of previous firm. Human Resource : Human Resource The policies and procedure of the firm should ensure that it has sufficient personnel with the capabilities, competence and commitment to ethical principles necessary to perform its engagements in accordance with the legal requirements and to enable the firm to issue reports that is appropriate in the circumstances.
These policies should cover
Estimation of personnel needs. Human Resource cont. : Human Resource cont. Capabilities and competencies can be developed through
Continuing Professional Development, including training
Coaching by more experienced staff.
The standard requires that each engagement should be assigned to engagement partner having such capability. The role and responsibilities of such partner should be defined and communicated to the client.
Assignment should be given to staff having appropriate capabilities, competence and time to perform the engagement in accordance with professional standards and regulatory and legal requirement. Human Resource cont. : Human Resource cont. The policies and procedure of the firm should also ensure
Strategy in case of Differences of opinion within the engagement team
Engagement quality control Review
Confidentiality, integrity, accessibility and retrievability of engagement documentation
Retention of Engagement Documentation as per requirement of law or regulation. Monitoring : Monitoring The policies and procedure relating to system of quality control of the firm should be relevant, adequate, operating effectively and complied with in practice.
Such policies and procedure should include ongoing consideration and evaluation of the firm’s system of quality control, including periodic inspection of selected engagement.
Deficiencies observed as a result of monitoring process should be
Communicated to engagement partner
Necessary remedial action should be taken as per the nature of the deficiency. Slide 20: RENUMBERING AND REARRANGEMENT OF EXISTING STANDARDS Audit and Reviews of Historical Financial Information : Audit and Reviews of Historical Financial Information Standards on Auditing (SAs) – 100 to 999
Standards on Review Engagements (SREs) 2000 to 2699
Standards on Auditing
Introductory Matters 100 to 199
General Principles and Responsibilities 200 to 299
Risk Assessment and Response to Assessed Risks 300 to 499
Audit Evidence 500 to 599
Using works of others 600 to 699
Audit conclusions and Reporting 700 to 799
Specialized Areas 800 to 899
Standards on Review Engagements Audit and Reviews of Historical Financial Information cont… : Audit and Reviews of Historical Financial Information cont… Introductory Matters (drafted)
General Principles and Responsibilities Audit and Reviews of Historical Financial Information cont… : Audit and Reviews of Historical Financial Information cont… Risk Assessment and Responses to Assessed Risks Audit and Reviews of Historical Financial Information cont… : Audit and Reviews of Historical Financial Information cont… Audit Evidence Audit and Reviews of Historical Financial Information cont… : Audit and Reviews of Historical Financial Information cont… Using work of others
Audit Conclusions and Reporting
Specialized Areas (drafted) Audit and Reviews of Historical Financial Information cont… : Audit and Reviews of Historical Financial Information cont… Standards on Review Engagements
SRE 2400 Engagement to Review Financial Statements (AAS 33) Assurance Engagements other than Audits or Reviews of Historical Statements : Assurance Engagements other than Audits or Reviews of Historical Statements Standards on Assurance Engagements (SAEs) 3000 to 3699
SAE 3400 The examination of Prospective Financial Statements (AAS 35) Related Services : Related Services Standards on Related Services (SRSs) 4000 to 4699
SRS 4400 Engagement to perform Agreed upon procedures Regarding Financial Statements (AAS 32)
SRs4410 Engagements to compile Financial Information (AAS 31) Slide 30: Revision of Existing Standard and insertion of new Standards Revision of Existing Standard and insertion of new Standards : Revision of Existing Standard and insertion of new Standards Standards that has been revised
SA 240 (AAS 4) Auditor’s Responsibility to consider Fraud and Error in an audit to Financial Statements (Revised as “Auditor’s Responsibilities Relating to Fraud in an audit of Financial Statements”)
SA 300 (AAS 8) Audit Planning (Revised as “Planning an Audit of Financial Statements)
SA 580 (AAS 11) Representation by Management (Revised as “Written Representations)
New Standards Introduced
SA 315 Identifying and assessing the Risks of Material Misstatement through understanding the Entity and its environment.
SA 330 The Auditor Responses to an Assessed Risks.