Users of financial statements of listed companies may get more out of auditor reports for 2018-19 onwards. This is because the Corporate Affairs Ministry (MCA) has put a brake on the CA Institute’s move to delay the applicability of a key auditing standard by two years.
The CA Institute’s Central Council on March 25 decided to defer the applicability date of auditing standard, SA 701, by two years from April 1, 2018 to April 1, 2020.
The Auditing Standard SA 701, “communicating key audit matters in the independent auditor’s report” was seen as significant as it sought to open the door for an auditor to give users of financial statements of listed companies more insight and improve transparency. Simply put, it increased the communicative value of an auditor report.
This government move is widely seen as yet another blow to the CA Institute, which recently lost its oversight powers on auditors of listed and large companies to the newly-constituted regulator National Financial Reporting Authority (NFRA).
Under this standard, auditors had to include, in the report, descriptions of ‘key audit matters’ (KAM) they focussed on and the procedures performed.
It may be recalled that the CA Institute had initially issued SA 701 in May 2016 to be applicable for audit of financial statements for periods beginning on or after April 1, 2017. Thereafter, the CA Institute had in March 2017 deferred the applicability of SA 701 by one year and made it applicable from April 1, 2018.
No further deferral
Further deferral to a later date (beyond April 1, 2018) is not allowed as legally, once the law is enforced, then it cannot be deferred further, MCA said in a letter to the CA Institute.
This MCA letter — seen by BusinessLine — said that the decision of ICAI is not supported on merits by justified and adequate reasoning and that further deferral of SA 701 to a later date beyond April 1, 2018 cannot be permitted.
Therefore, this auditing standard SA 701 remains applicable for audits of financial statements for periods beginning on or after April 1, 2018, the MCA letter said.
Naveen ND Gupta, Past President, ICAI, felt the government should not have turned down ICAI’s decision. Gupta told BusinessLine: “ICAI is research-oriented regulator and National Standards setter and tasked with onerous duty to be important link between industry and the government.
Concerns of industry and citizens as communicated (including this case) by ICAI, which has nominees from Government, including MCA, after due deliberation should per se be accepted by MCA and NFRA specifically relating to matters concerning accounting and auditing standards”.
Ashok Haldia, former Secretary of CA Institute, however, said that communicating KAM to users of financial statements is very useful as it helps in dealing with and understanding areas of focus in performing audit.
via Govt throws a spanner in CA Institute’s plans of deferring a key auditing standard by two years – The Hindu BusinessLine