AUDITING - CHANGING LANDSCAPES

The Chartered Accountants community of Auditors is being exposed to new challenges and expectations while they are finalizing audits for the Financial Year ending March 31, 2015. The new provisions will ensure that all the serious and committed professional Chartered Accountants gain substantially as the value of the Audit Report and its credibility will be much higher in the light of new responsibilities and Corporate Governance Mechanism.
Auditors' Appointment: The Auditors have been appointed for the period of five years. Auditors cannot be removed during this period without the approval of Central Government, providing necessary strength to independence, paving way for excellence, effectiveness and efficiency in Audit.

• Audit Report: Auditors are required to additionally report on the observations or comments on financial transactions or matters which have any adverse effect on the functioning of the companies, including any qualification, reservation or adverse remarks relating to maintenance of accounts and other connected matters. As per ICAI guidance, the Auditors need to report on these aspects in relation to Auditor's Qualification, Modification, Disclaimer and Emphasis of matter paragraph. The Auditors shall also report on disclosure of impact of pending litigation in the financial statement, provision of foreseeable losses on long term contracts including Derivative contracts beside delay in transfer to Investor Education Fund.
• Adequacy of Internal Financial Control: The Auditors are also required to comment on the adequacy of Internal Financial Control System and whether the controls are operating effectively. This reporting is mandatory w.e.f Financial Year 2015-2016 and is voluntary in current reporting. It will be important for auditors to ensure that the internal control system is documented in writing and written delegation of powers are in place in respect of all the major financial transaction including purchases, sales, revenue, assets and liabilities as per internal control framework.
• CARO 2015: The new requirement of CARO has been notified on MCA website and the requirements are more focused and specific.
• Business Relationship: Auditors are now prohibited to have any business relationship with the company or its subsidiary company or its associate company or its holding company. This will necessitate that the auditors or their related parties do not undertake any other business transaction or relation with Auditee Group.
• Restriction on Non Audit Services: The Auditors cannot offer Non Audit Services as defined and prescribed in the New Companies Act and rules made there under,Accounting/Internal Audit, Financial services and most other non audit services including management services.

In our view the prohibition do not restrict the auditors to undertake tax audit, filing of tax return, undertaking supervision of tax compliance's, certification of MCA forms and similar other compliance's.  The new opportunities of mandatory consolidation of Financial Statements, adoption of IFRS, ICDS, increased compliance's, internal audit, valuation for issue of shares in terms of Companies Act 2013 and many other new opportunities will bring large demand for Chartered Accountants. This will also ensure that the Chartered Accountants available for undertaking statutory audits functions will be limited in number.