RECENT AMENDMENTS IN AUDITING STANDARDS

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RECENT AMENDMENTS IN AUDITING STANDARDS

• Presented by Mukesh Thakur

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Purposes of Changes in Standards

• To keep alignment with the International
  Practice.
• To converge with International Standards on
  Auditing.

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AGENDA
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• Standards on Quality Control (SQCs)

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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.

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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.

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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.

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Elements of a system of quality control
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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.

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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)

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Ethical Requirements cont
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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.

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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.

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Acceptance and continuance of client
relationships and specific requirements

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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.

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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.

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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.

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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.

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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
  firms 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.

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• RENUMBERING AND REARRANGEMENT OF EXISTING
  STANDARDS

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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

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Audit and Reviews of Historical Financial
Information cont

• Introductory Matters (drafted)
• General Principles and Responsibilities

SA NAME AAS
SA 200 Basic Principles Governing an Audit 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 auditors responsibilities to consider Fraud and Error in an Audit of Financial Statements (revised as The auditors 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
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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 statements) AAS 8
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 Relating to Entities Using Service Organisations AAS 24
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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
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Audit and Reviews of Historical Financial
Information cont

• Using work of others
• Audit Conclusions and Reporting
• Specialized Areas (drafted)

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
SA Name AAS
SA 700 The Auditors Report on Financial Statements AAS 28
SA 710 Comparatives AAS 25
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Audit and Reviews of Historical Financial
Information cont

• Standards on Review Engagements
• SRE 2400 Engagement to Review Financial
  Statements (AAS 33)

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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)

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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)

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• Revision of Existing Standard and insertion of
  new Standards

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Revision of Existing Standard and insertion of
new Standards

• Standards that has been revised
• SA 240 (AAS 4) Auditors Responsibility to
  consider Fraud and Error in an audit to Financial
  Statements (Revised as Auditors
  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.