Transcript Recent AMENDMENTS IN AUDIT STANDARS

RECENT AMENDMENTS IN
AUDITING STANDARDS
Presented by: Mukesh Thakur
Purposes of Changes in Standards
• To keep alignment with the International Practice.
• To converge with International Standards on Auditing.
AGENDA
Introduction of Standard on Quality
Control 1.
Renumbering and rearrangement of
Existing Auditing Standards.
Revision of Some existing standards.
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
• 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
• 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
• 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
Leadership Responsibilities
Ethical Requirements
Acceptance and Continuance of client relationships and specific engagements.
Human resource
Engagement Performance
Monitoring
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
• 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
– Integrity
– Objectivity
– Professional Competence and due care
– Confidentiality and
– Professional Behavior.
(ICPOP)
Ethical Requirements cont…
Policies and procedure of firm should emphasize on following
principals
The
leadership of
the firm
Education and
Training
Monitoring
A Process of
Dealing with
non
compliances
Independence
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…
– 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
•
The policies and procedure of the firm should be such that it ensure
that
It has considered the
integrity of the client and
does not have information
that
would
lead
to
conclude that the client
lacks integrity
Is competent to perform
the engagement and has
capabilities, time and
resources to do so
Can comply with the
ethical requirements
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
• 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
– Recruitment
– Performance evaluation
– Capabilities
– Competence
– Career Development
– Promotion
– Compensation and
– Estimation of personnel needs.
Human Resource cont.
• Capabilities and competencies can be developed through
– Professional Education
– Continuing Professional Development, including training
– Work Experience
– 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.
• The policies and procedure of the firm should also ensure
– Engagement performance
– Consultation
– Strategy in case of Differences of opinion within the engagement
team
– Engagement quality control Review
– Engagement Documentation
– Confidentiality, integrity, accessibility and retrievability of
engagement documentation
– Retention of Engagement Documentation as per requirement of law
or regulation.
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
– Evaluated
– Communicated to engagement partner
– Necessary remedial action should be taken as per the nature of the
deficiency.
RENUMBERING AND REARRANGEMENT OF EXISTING STANDARDS
Engagement and other Quality control Standards
Standards on quality control
SQC 1 ‘Quality control for firms that perform Audit and reviews of
historical financial information and other Assurance and Related Services
Audit and Reviews
of Historical
Financial
Information
Assurance
Engagements other
than Audits or
Reviews of Historical
Financial Information
Related Services
Audit and Reviews of Historical Financial Information
• Standards on Auditing (SAs) –
• Standards on Review Engagements (SREs)
100 to 999
2000 to 2699
• Standards on Auditing
– Introductory Matters
– General Principles and Responsibilities
– Risk Assessment and Response to Assessed Risks
– Audit Evidence
– Using works of others
– Audit conclusions and Reporting
– Specialized Areas
• Standards on Review Engagements
100 to 199
200 to 299
300 to 499
500 to 599
600 to 699
700 to 799
800 to 899
Audit and Reviews of Historical Financial Information cont…
• Introductory Matters (drafted)
• General Principles and Responsibilities
SA
SA 200
NAME
Basic Principles Governing an Audit
AAS
AAS 1
SA 200A Objective and Scope of the Audit of Financial Statements
AAS 2
SA 210
Terms of Audit Engagement
AAS 26
SA 220
Quality control for Audit work
AAS 17
SA 230
Documentation
AAS 3
SA 240
The auditor’s responsibilities to consider Fraud and Error in an Audit
of Financial Statements (revised as ‘The auditor’s responsibilities
relating to Fraud in an Audit of Financial Statements’)
AAS 4
SA 250
Consideration of Laws and Regulations in an Audit of Financial
Statements
AAS 21
SA 260
Communication of Audit Matters with those charged with governance
AAS 27
SA 299
Responsibility of Joint Auditors
AAS 12
Audit and Reviews of Historical Financial Information cont…
• Risk Assessment and Responses to Assessed Risks
SA
Name
AAS
SA 300
Audit Planning (revised as planning an audit of financial AAS 8
statements)
SA 310
Knowledge of the Business
AAS 20
SA 315
Identifying and Assessing the Risks of Material Misstatement through
Understanding the Entity and its Environment
New
SA 320
Audit Materiality
AAS 13
SA 330
The Auditor Responses to Assessed Risks
New
SA 400
Risks Assessments and Internal Control
AAS 6
SA 401
Audit in a computer Information Systems Environment
AAS 29
SA 402
Audit Considerations
Organisations
Relating
to
Entities
Using
Service AAS 24
Audit and Reviews of Historical Financial Information cont…
• Audit Evidence
SA
Name
AAS
SA 500
Audit Evidence
AAS 5
SA 501
Audit Evidence – Additional Considerations for specific items
AAS 34
SA 505
External Confirmations
AAS 30
SA 510
Initial Engagements – Opening Balances
AAS 22
SA 520
Analytical Procedures
AAS 14
SA 530
Audit Sampling
AAS 15
SA 540
Auditing of Accounting Estimates
AAS 18
SA 550
Related Parties
AAS 23
SA 560
Subsequent Events
AAS 19
SA 570
Going Concern
AAS 16
SA 580
Representation by management (revised Written Representations)
AAS 11
Audit and Reviews of Historical Financial Information cont…
• Using work of others
SA
Name
AAS
SA 600
Using the work of another Auditor
AAS 10
SA 610
Relying on the work of an Internal Auditor
AAS 7
SA 620
Using the work of an Expert
AAS 9
• Audit Conclusions and Reporting
SA
Name
AAS
SA 700
The Auditor’s Report on Financial Statements
AAS 28
SA 710
Comparatives
AAS 25
• Specialized Areas (drafted)
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
• Standards on Assurance Engagements (SAEs)
3000 to 3699
– SAE 3400 The examination of Prospective Financial Statements
(AAS 35)
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)
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.