Regulatory updates

Statutory audit of banks involves a number of peculiarities due to some unique features of banks and banking operations e.g., huge volumes and complexity of transactions, wide geographical spread of banks’ network, large range of products and services offered, extensive use of technology, strict vigilance by the banking regulator, etc.

In this regard, ICAI releases a publication ‘Guidance Note on audit of banks’ (the guidance note) every year to provide detailed guidance to auditors conducting audit of banks and their branches. The revised 2023 edition of the guidance note is divided into two sections:

Section A – Statutory Central Audit
Section B – Bank Branch Audit

It incorporates the impact of various circulars of the Reserve Bank of India (RBI) as well as certain important advisories, pronouncements of the ICAI which would be relevant for bank audits for the financial year ending 31 March 2023.

The ED is open for comments up to 12 February 2023.

To access the text of the ED, please click here

ICAI, through the Direct Taxes Committee has issued an Exposure Draft (ED) on ‘Guidance Note on audit of charitable institutions under Section 12A of the Income-Tax Act, 1961’ (the guidance note). It is based on the law as amended by the Finance Act, 2022. The Guidance Note explains various important concepts, including:

• Audit and audit report under Section 12A(1)(b)
• Audit under other laws
• Scheme of exemption
• Other relevant judicial precedents, etc.

The comment period on the ED ended on 25 January 2023.

To access the text of the ED, please click here

Over the years, NPOs have grown substantially in terms of their value and operations. Thus, it becomes imperative to ensure their accountability and transparency. Sound financial reporting is a step in this direction. At the international level, it has been recognized that the preparation of financial statements by NPOs is crucial for their accountability and decision-making and for enhancing the trust and confidence of the stakeholders in them. However, presently there are no international standards to guide the NPOs for preparing their financial statements.

In this regard, recently, the first Exposure Draft (ED) of the International Non-Profit Accounting Guidance (INPAG) has been issued by the Chartered Institute of Public Finance and Accountancy (CIPFA) for creating specific financial reporting guidance for the NPOs. The ED is open for comments up to 31 March 2023. Basis the feedback received from various stakeholders, two more EDs would be issued which would collectively comprise the INPAG.

In order to contribute to the standard setting at the international level, the ED has also been hosted on ICAI’s website for public comments with last date as 17 February 2023.

To access the text of the ICAI announcement, please click here

In June 2022, the ICAI had issued two Technical Guides on “financial statements of non-corporate entities” and “financial statements of LLPs”, thereby clarifying the applicability of Accounting Standards and also recommended formats of the financial statements for such entities. In this regard, the ICAI has now proposed to prescribe the formats for presentation of financial statements of these entities in the form of Guidance Notes (GNs). The GNs comprise of different chapters, specifying certain key provisions with regard to the Balance Sheet, Statement of Profit and Loss, Cash Flow Statements, illustrative formats, etc. The objective is to further ensure that these formats are followed consistently to achieve standardisation and enhance the quality of financial reporting by these entities.

The comment period ended on 8 March 2023.

To access the text of the GNs, please click here

Certain Indian Accounting Standards (Ind AS) such as Ind AS 102, Share-based Payment, Ind AS 103, Business Combinations and Ind AS 109, Financial Instruments require a capital reserve to be created towards unrealised profits arising from certain transactions or other events. However, currently, there is no specific guidance on their subsequent transfer to retained earnings or other free reserves.

In this regard, on 21 March 2023, ICAI issued an exposure draft of the Guidance Note on Transfer of Capital Reserve (ED). As per the ED, for capital reserves created as per the requirements of an Ind AS or erstwhile Accounting Standards, the amount can be transferred to retained earnings or other free reserves when the following two conditions are met:

• The company has realised the underlying amount
• The amount has become available for distribution under the law.

The amount may be transferred either proportionately each or at end on sale of the asset. Specific disclosures are required in the year of transfer.

The ED also clarifies that it would not apply to capital reserves created under any law. Any reserve which is created as per the requirements of the Companies Act, 2013 or other applicable law cannot be transferred to other reserves except as required by the applicable law or by a regulatory requirement. Additionally, few other reserves, which are purely capital in nature – for example, capital profit on reissuance of forfeited shares, cannot be transferred to free reserves/retained earnings as underlying transaction is completed.

It has been proposed that this guidance note would come into effect in respect of the capital reserve appearing in the books of accounts retrospectively.

The last date for submission of comments is 20 April 2023.

To access the text of the ED, please click here

The Key Performance Indicators (KPIs) refer to the numerical measures of an issuer company’s historical financial or operational performance and financial or operational positions. The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) mandates the disclosure of such KPIs in the offer document by the issuer company under the heading ‘Basis for Issue Price’. Further, the KPIs disclosed in the offer document should be approved by the audit committee of the issuer company and also certified by the statutory auditor(s) before such disclosure is made.

In this regard, on 6 April 2023, the Institute of Chartered Accountants of India has issued the Technical Guide on Disclosure and Reporting of KPIs in Offer Documents (Technical Guide). Some of the key guidance provided in the Technical Guide includes:

• Recent amendments to the ICDR Regulations in relation to disclosure of KPIs
• Disclosure/relevance of KPIs
• Roles and responsibilities of bankers, issuer company and practitioners
• Liability for misstatement in prospectus
• Illustrative format of independent auditor’s/practitioner’s report on KPIs

To access the text of the Technical Guide, please click here

Recently, the Institute of Chartered Accountants of India (ICAI) issued the Compendium of Indian Accounting Standards (Ind AS) (Year 2023-24) – Volume I and Volume II publication (the compendium). The compendium encompasses all the amendments issued by the Ministry of Corporate Affairs (MCA) till date which are effective as of 1 April 2023.

To access the text of the compendium, please click here

Recently, ICAI released a Handbook on Disallowance of Expenses under the head Income from Business and Profession (the handbook). It provides basic knowledge and guidance on disallowance of expenses under the Income Tax Act, 1961. The handbook incorporates specific provisions for disallowance of expenses, which include:

• Section 40 – Amounts not deductible
• Section 40A – Expenses or payments not deductible in certain circumstances
• Section 43B – Certain deductions to be only on actual payment

To access the text of the handbook, please click here

Collection of tax at source (TCS) is a set of provisions requiring taxpayers to collect tax at source while collection of proceeds of sale. A complete set of provisions for prescribing situations for TCS, its rate and administrative provisions are included in this handbook.

To access the text of the handbook, please click here

Recently, the Institute of Chartered Accountants of India (ICAI) updated the Sustainability Reporting Maturity Model to SRMM Version 2.0 to incorporate the changes introduced via SEBI Business Responsibility and Sustainability Report (BRSR) circular dated 10 May 2021.

SRMM Version 2.0 offers the possibility for each corporate complying with BRSR to individually assess its position vis a vis various sustainability reporting maturity levels and achieve its vision of sustainable business. Level 1, Level 2, Level 3 and Level 4 of sustainability maturity of corporates have been defined based on the total range of scores obtained by a corporate in a financial year as per the proposed BRSR scoring mechanism.

Through this, corporates can self-evaluate their current level of maturity on the SRMM and identify areas where more focus is required and develop a road map for upgrading to a higher level of maturity. This would include formulation of strategies/processes for internal controls and data collection to progress towards achievement of sustainable goals and thus, move to a higher level of sustainable reporting.

To access the text of the SRMM, please click here

With the introduction of Framework for Social Stock Exchange (SSE) by SEBI, there was a need to prescribe comprehensive guidance on the accounting by NPOs, including the applicability of Accounting Standards (AS) for NPOs. In this regard, to recommend such guidance and update the formats of financial statements being prepared by NPOs, ICAI, through the Accounting Standards Board (ASB) recently revised the Technical Guide on Accounting for NPOs (the technical guide). The technical guide incorporates the updated accounting treatments/ provisions of AS along with the formats of financial statements that have also been reviewed and updated.

To access the text of the technical guide, please click here

Recently, the Institute of Chartered Accountants of India (ICAI) issued the Checklist on Standards on Auditing. The publication covers the checklist on all 38 Standards on Auditing (SAs), thereby incorporating various audit requirements provided in this regard. It also contains various “Notes” to explain these checklists, wherever deemed necessary and contains the relevant guidance, as enunciated in the SAs.

To access the text of the checklist, please click here

Recently, SEBI through notifications dated 25 July 2022 and 19 September 2022 had prescribed the detailed framework for Social Stock Exchange (SSE) in India. Consequently, ICAI, through the Sustainability Reporting Standards Board (SRSB) had issued 16 Social Audit Standards (SAS) and a detailed framework for the same.

In this regard, ICAI has released a Compendium of Social Audit Standards (the compendium). The compendium contains the text of various SAS, framework for SAS, preface and a glossary of terms for ease of reference of the users.

To access the text of the compendium, please click here

Recently, ICAI released the audit working paper templates (the publication). The publication consists of templates of various audit working papers that are required to be prepared by the auditors in accordance with the requirements of Standards on Auditing (SAs). It also contains templates of other important audit working papers – for example, Schedule III of the Companies Act, 2013 checklist, CARO 2020 checklist, amongst others.

The templates should be used and modified according to the facts, circumstances and nature of the entity under audit.

To access the text of the publication, please click here

Recently, ICAI made the 20 Forensic Accounting and Investigation Standards (FAIS) mandatory w.e.f. 1 July 2023. With a view to provide an updated publication for reference of the practitioners, ICAI, through the Digital Accounting and Assurance Board (DAAB) has released a revised compendium of FAIS (the compendium). The compendium encompasses the latest best practices, methodologies and guidance to ensure that the practitioners are equipped with the latest tools and knowledge in the domain of forensic accounting.

To access the text of the compendium, please click here

Recently, ICAI issued certain case studies on excellency in financial reporting (the case studies). The case studies would aid in providing the stakeholders with cases of contextual issues, events and conditions, citing several practices and theories and enhance the overall understanding and knowledge of implementing Ind AS.

To access the text of the case studies, please click here

On 11 July 2023, SEBI issued a master circular for compliance with the provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) by listed entities. The master circular consists of the following seven chapters:

• Chapter I: Uniform listing agreement
• Chapter II: Periodic disclosures (non-financial)
• Chapter III: Financial disclosure
• Chapter IV: Annual disclosures
• Chapter V: Event-based disclosures
• Chapter VI: Other obligations and disclosure requirements, and
• Chapter VII: Penal actions for non-compliance.

To access the text of the master circular, please click here

On 27 July 2023 , the Institute of Chartered Accountants of India released the Indian Accounting Standards (Ind AS): An overview (Revised 2023) (the publication). It contains an overview of the various aspects related to Ind AS, including:

• Summary of all the Ind AS
• Carve-outs from IFRS/IAS
• Changes in financial reporting under Ind AS, compared to financial reporting under Accounting Standards (AS), etc.

The publication incorporates all the amendments made to Ind AS till June 2023.

To access the text of the publication, please click here

Recently, ICAI released the guidance note on financial statements of Limited Liability Partnerships (LLPs) and non-corporate entities, with a view to further enhance the quality, comparability and comprehensiveness of financial reporting by such entities and also provide the relevant authoritative guidance.

Further, ICAI has also upgraded the technical guides issued earlier in June 2022, into the guidance notes.

To access the text of the guidance note on financial statements of LLPs, please click here

To access the text of the guidance note on financial statements of non-corporate entities, please click here

Recently, ICAI released the Guidance Note on tax audit under Section 44AB of the Income-tax Act, 1961 (Revised 2023) (the Guidance Note). The Guidance Note provides a comprehensive roadmap to navigate the complexities of tax audit and provides guidance on the details of audit procedures to be performed.

It incorporates all the amendments made upto Finance Act, 2023 and tax audit forms applicable as on date. Further, the guidance note aims to address the situations faced by the Chartered Accountants while conducting audit, by offering clear explanations that will help in streamlining the tax audit process.

To access the text of the guidance note, please click here

Recently, ICAI released the technical guide on audit of Non-Banking Financial Companies (NBFCs) (Revised 2023) (the technical guide). The technical guide deals with various aspects of audit of NBFCs, such as:

• Introduction of NBFCs
• Points for consideration in audit of NBFCs
• Financial reporting framework
• Auditing framework
• Areas of audit concern
• Operations of NBFCs, governance etc.

Further, the appendices to the technical guide contain illustrative templates of audit report/certificate, illustrative audit checklist, illustrative list of master directions, circulars, RBI notifications, illustrative disclosure norms for NBFCs, illustrative list of returns to be submitted by NBFCs etc.

To access the text of the technical guide, please click here

The Indian pharmaceutical industry is exposed to varied nature of resources and a complex external environment. This requires the need of optimised use of resources, assessment and improvement of existing controls and processes, assurance and advice w.r.t. governance, risk appetite, risk and control culture. Thus, internal audit is seen as a good tool for the growth of pharmaceutical industry. In this regard, Chartered Accountants play a crucial role in assisting pharmaceutical industry by planning and channelling risks into opportunities, as well as assisting management in taking further action.

Recently, ICAI released a technical guide to provide guidance to the internal auditors in carrying out internal audit of companies operating in pharmaceutical industry. It provides guidance on various aspects involved in different stages of the pharmaceutical industry and regulatory framework. The guide also describes risks associated with pharmaceutical industry and internal controls checklist for various processes.

To access the text of the technical guide, please click here

Concurrent audit is a management process, integral to the establishment of a sound internal accounting function and effective control mechanism for banks. In order to assist the members in understanding the intricacies of concurrent audit and thereby improve the quality of concurrent audit reports, recently, ICAI issued the manual on concurrent audit of banks (2023 edition). The manual incorporates the revised concurrent audit guidelines issued by RBI in September 2019 and includes the revised concurrent audit checklist. It comprises of the following three parts:

• Part I: Understanding the banking business and its legal framework
• Part II:Domain of concurrent audit, and
• Part III: Concurrent audit checklist and core banking system.

To access the text of the manual, please click here

Over the past few years, charitable trusts and institutions have witnessed a major transformation in terms of the reporting requirements. In order to better equip the practitioners in engaging with such entities, recently, ICAI issued a technical guide on reports of audit under Section 12A/10(23C) of the Income Tax Act, 1961 (the technical guide). The technical guide encompasses the taxation aspects relating to charitable trusts and institutions, exploring the fundamental concepts that underpin their creation and operation.

It would enable the members to understand the intricacies w.r.t. recent amendments in this sphere and its related re-notified audit forms.

To access the text of the technical guide, please click here

Recently, the Quality Review Board (QRB) of the ICAI issued the Report on Audit Quality (2022-23). Some of the key observations highlighted pertain to:

• Audit quality control systems, supervision and auditor independence
• Related party transactions
• Auditor responsibilities relating to fraud
• Accounting estimates
• Auditor’s use of experts
• Materiality and audit sampling, etc.

To access the text of the report, please click here

Ind AS 12, Income Taxes provides a structured framework for recognising and measuring income taxes, to ensure that the financial statements accurately reflect an entity's tax obligations and the associated impacts on its financial performance and position.

Recently, ICAI issued the education material on Ind AS 12, Income Taxes (the education material). The education material offers a comprehensive assessment of Ind AS 12 along with its practical implications in the form of various Frequently Asked Questions (FAQs).

To access the text of the education material, please click here

ICAI has issued the 42^nd volume part II of the compendium of opinions issued by EAC. This volume now contains opinions on important issues which include:

• Accounting for advance payment made towards way leave charges as a part of laying city gas distribution network
• Accounting for securitisation arrangement and investments in PTC securities
• Principal vs. agent relationship for recognition of revenue
• Accounting of export incentives
• Revenue recognition in case of an implementing agency of the State Government.
• Recognition of interest on mobilisation advance against project contracts under Ind AS Framework

To access the text of the compendium of opinions, please click click here

Publication 1- Liquidation Process - A Handbook for the Guidance of Insolvency Professionals. This handbook was released to help professionals appreciate the practical aspects and understand clearly the provisions related to orderly conduct of Liquidation Process under IBC, which is crucial in performing the task of liquidation effectively and efficiently as mandated under the Insolvency & Bankruptcy Code, 2016.

Click here to access the publication.

Publication 2- Voluntary Liquidation Process - A Handbook for the Guidance of Insolvency Professionals. This handbook was released to facilitate professionals understand the intricacies and provisions related to conduct of Voluntary Liquidation Process under IBC and to know about the practical aspects thereunder.

Click here to access the publication.

Charitable trusts and institutions have been subject to reporting requirements that have transformed over the years. In October 2023, ICAI had issued a technical guide on reports of audit under Section 12A/10(23C) of the Income Tax Act, 1961 (the technical guide). Recently, ICAI issued an exposure draft on ‘Guidance Note on Reports on Audit under Section 12A/10(23C) of the Income-tax Act,1961’ taking the technical guide as base.

The draft guidance note aims to:

• Better equip the practitioners in engaging with charitable institutions while conducting audit under section 12A and 10(23C) of the Income Tax Act, 1961 and
• Provide guidance to those in charge of governance of charitable institutions for discharging their respective responsibilities towards audit of accounts

The comment period ends on 29 May 2024.

To access the text of the exposure draft, please click here