Regulatory updates

With a view to improve the quality of tax audits, the Tax Audit Quality Review Board (TAQRB) of ICAI has issued a publication ‘Study on Compliances in Reporting in Tax Audit Report’ to help and guide its members in enhancing and improving the quality of tax audit. The publication provides guidance with respect to Section 44AB of the Income Tax Act, 1961 as well as provides various practical examples and illustrations to explain different issues around Tax Audits.

To access the publication, please click here

With the emergence of risk concerns such as the global pandemic, multiple economic and financial crisis along with a series of scandals across sectors, a strong need has been felt for the auditors and CFOs to manage these risks and establish the necessary controls within each business process. This has become all the more important due to the constant change in the risk landscape and continued technological advancements.
Against this backdrop, ICAI, through its Research Committee undertook a research project on the mentioned topic and in July 2022, released its publication - The Emerging role of Auditors and CFOs in - addressing Risk Management: A New Perspective. The publication is expected to provide auditors, boards and senior management with recommendations and insights into a framework for effective risk management and Enterprise Risk Management (ERM) implementation.

ICAI has issued the 41st volume of the compendium of opinions issued by the Expert Advisory Committee (EAC) (Volume XLI). It contains opinions finalised between 12 February 2021 and 31 October 2021. Some of the key issues include:

• Treatment of investments in subsidiaries/associates held through policyholders' funds,
• Accounting treatment for backstopping arrangement for Compulsorily Convertible Debentures (CCDs),
• Accounting treatment of construction of facilities for import of additional requirement of power,
• Accounting treatment in the company’s standalone financial statements for the corporate guarantee (deed of guarantee) issued by the company being parent company to banks/suppliers/service providers on behalf of its step-down subsidiary company,
• Accounting treatment of expenditure incurred on the assets not owned by the company, and
• Classification of business activity as an operating activity or investing activity

Section 44AB of the Income-tax Act, 1961 contains provisions pertaining to the tax audit under the Income Tax Audit, 1961. A tax audit is an examination of a taxpayer’s books of account and other relevant records. The examination is conducted to ensure that during the tax audit, the person responsible for issuing the tax audit report is expected to verify the financial statements based on which income computation is based are true and fair and particulars furnished in form No. 3CD are true and correct.

There have been substantial changes in provisions of law and clauses included in the particulars to be furnished in the Form No. 3CD since the last publication.

The ICAI issued a revised Guidance Note on Tax Audit u/s 44AB of the Income-tax Act, 1961.

The law relating to audit of charitable trusts and institutions is complex and has been the subject matter of frequent amendments. In this regard, ICAI has issued the Technical Guide on Audit of Charitable Institutions under Section 12A of the Income tax Act, 1961. This publication provides guidance to members on audit of public charitable institutions under the Income-tax Act, 1961. Some key topics discussed in the Technical Guide include:

• Audit under Section 12A(1)(b),
• Scheme of exemption(s),
• Relevant judicial precedents, etc.

To access the text of the publication, please click here

The Financial Reporting Review Board (FRRB) of the ICAI has issued Volume II of the Study on compliance of financial reporting requirements (Ind AS framework).

Apart from carrying out the review of general-purpose financial statements to determine the compliance with financial reporting standards, rules and regulations issued by the relevant regulatory authorities, FRRB also ventures towards spreading awareness amongst the members as well as other stakeholders about the pertinent issues in the areas of reporting.

The publication contains FRRB’s findings from the review of general-purpose financial statements prepared under Ind AS framework. The observations have been categorised into following eight categories:

• Observations related to assets
• Observations related to equity
• Observations related to liabilities
• Observations related to Statement of Profit and Loss
• Observations related to Statement of Cash Flows
• Observations related to other disclosures
• Observations related to auditor’s report
• Observations related to CARO, 2016.

To access the text of the publication, please click here

The obligation of the members of ICAI is to express opinion on the accounts, records and documentation pertaining to international transactions and specified domestic transactions and therefore, they are expected to have a thorough knowledge of transfer pricing regulations and other recent developments.

Over the years, ICAI, through the Committee on International Taxation (the Committee) has been issuing guidance for its members in respect of the report under Section 92E of the Income-tax Act, 1961. In this regard, the Committee has issued the ninth edition of the Guidance Note on Report under Section 92E of the Income-tax Act, 1961, thereby incorporating all the amendments made up to Finance Act, 2022.

To access the text of the publication, please click here

The Quality Review Board (QRB), recently issued a report on Audit Quality Review, thereby compiling the results and observations of various audit quality reviews undertaken during FY 2021-22. The report explains the basis of selection of audit firms for review, overall process of conducting such reviews and also highlights some of the key takeaways for the audit firms. The report also summarises different observations encountered during the course of the reviews. The report includes:

• Observations relating to Standards on Auditing (SAs)
• Observations relating to Accounting Standards (AS) and Indian Accounting Standards (Ind AS)
• Observations relating to other relevant laws and regulations.

To access the text of the report, please click here

Recently, ICAI issued the Revised November 2022 version of the Ind AS: Disclosures checklist.

To access the text of the Revised checklist, please click here

Peer Review Guidelines 2022 replace the Statement on Peer Review. It comprises a complete code relating to peer review, including the terms of reference of such reviews and roles and responsibilities of the parties concerned (i.e., the practice units as well as the reviewers).

To access the text of the guidelines, please click here

The handbook incorporates the recent amendments made in the provisions relating to various returns prescribed under GST law and payment of taxes. The various forms for filing GST returns and making payment have been discussed in the handbook.

To access the text of the handbook, please click here

The handbook explains various provisions relating to annual return. Topics such as – who is required to file annual return, explains mandatory and optional fields and from where details may be captured to fill a particular field, etc. have been discussed in the handbook.

To access the text of the handbook, please click here

The handbook contains provisions of composition levy that have been included in the GST law to provide simple and easy compliance for small taxpayers. All the significant aspects of composition scheme, i.e., meaning of aggregate turnover, treatment of interest and discounts while calculating aggregate turnover, availability of the scheme to mixed suppliers and service providers, accounts and records required to be maintained, applicable returns, etc. have been discussed in the handbook.

To access the text of the handbook, please click here

The handbook aims to explain the complex law relating to inspection, search, seizure and arrest, as well as the various legal issues associated with such provisions.

To access the text of the handbook, please click here

Over the years, with an increase in the number of technology tools and automation, an abundant amount of information is available in the online mode upon which ICAI members may be required to report or certify. Thus, it is imperative for the auditors to be hands on with the various technological changes and implement the same in their audit procedures.

In this regard, recently, ICAI released the Technical Guide on Digital Assurance (the technical guide). The technical guide has been prepared with the aim to aid members in adopting the enhanced use of technology in audit by implementing the use of digitally available audit evidence and information. This would further help in reducing the time taken for completing audit procedures.

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

Recently, ICAI issued a publication – A Primer on the Concept of Social Stock Exchange (the publication). The publication covers key concepts of Social Stock Exchange (SSE), important requirements of the respective SEBI notifications and an overview of SSEs established across the world.

To access the text of the publication, please click here

Ind AS 21, The Effects of Changes in Foreign Exchange Rates lays down guidance on foreign currency transactions and foreign operations in the financial statements of an entity and also explains how to translate the financial statements into presentation currency. It also specifies which exchange rates(s) to be used and how to report the effects of changes in exchange rates in the financial statements. In this regard, recently, ICAI issued an Educational Material on Ind AS 21 (the education material), thereby addressing the relevant aspects in the form of a brief summary of Ind AS 21 and Frequently Asked Questions (FAQs) on practical issues that the preparers of the financial statements may face while applying Ind AS 21.

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

Recently, ICAI issued the Implementation Guide (IG) to Standard on Auditing (SA) 580, Written Representations. The IG consists of three chapters –

• Chapter 1: Introduction and overview
• Chapter 2: Implementation guidance
• Chapter 3: Illustrative checklist

Further, the IG also provides an illustrative representation letter, an illustrative format for updating management representation letter as well as the illustrative format for additional considerations for reference purpose.

To access the text of the IG, please click here

On 16 March 2023, ICAI, through the AASB issued the Guidance Note on Audit of Banks (2023 Edition) (GN). The GN has been updated to incorporate the recent updates, impact of amendments and changes in the banking environment, including – master directions/circulars of the Reserve Bank of India (RBI), relevant advisories, pronouncements of ICAI etc. The GN is divided into two sections:

• Section A: Statutory Central Audit
• Section B: Bank Branch Audit

The GN also contains various appendices such as the illustrative formats of engagement letter, auditor’s report, management representation letter, master directions, master circulars and other relevant RBI circulars.

To access the text of the GN, please click here

Over the years, several instances have come to light wherein different assumptions considered by the valuers have resulted in significant differences in the final valuation. Further, recent developments in the Indian valuation landscape have necessitated a greater emphasis on proper valuation processes. Valuation of asset in the extractive industry is one of the crucial elements in the overall valuation ecosystem. Considering its importance, ICAI, through the Valuation Standards Board and the Registered Valuers Organisation issued the Technical Guide on Valuation of Assets in Extractive Industries (technical guide). The technical guide provides some key guidance with respect to:

• Recent developments and future outlook of the extractive industry
• Recent key drivers in valuation of companies in the extractive industry
• Valuation approaches – Market approach, income approach and cost approach
• Financial statements of some industries in the extractive business

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

SA 700, Forming an Opinion and Reporting on Financial Statements deals with the form and content of audit report. SA 705, Modifications to the Opinion in the Independent Auditor’s Report specifies how the form and content of an audit report is affected when the auditor expresses a modified opinion. SA 530, Audit Sampling prescribes the principles for using audit sampling in audit engagements. In order to enable the auditors in discharging their audit responsibility effectively, ICAI, on 25 March 2023 issued certain FAQs on important principles enunciated in Standards on Auditing w.r.t. Auditor’s Opinion and Audit Sampling (FAQs). The FAQs explain some concepts such as:

• When is an unmodified, qualified, adverse or disclaimer of opinion issued?
• What is a material misstatement of a financial statement?
• When is the effect of a misstatement considered to be pervasive?
• What is the inability of the auditor to obtain sufficient appropriate audit evidence?
• What is sampling risk? How to determine sample size and select samples?
• How to determine completeness of population from which sample is drawn?

To access the text of the FAQs, please click here

ICAI, through the Expert Advisory Committee (EAC) issued the 42nd volume of the compendium of opinions (Volume XLII Part-I). It contains the opinions finalised between 12 February 2022 and 31 August 2022. Some of the key opinions issued include:

• Accounting for bearer plants
• Accounting treatment of delayed payment charges
• Applicability of Ind AS 114 and presentation of deferred tax liabilities on regulatory deferral accounts
• Classification of PPE under refurbishment, depreciation thereon and its impairment
• Presentation of accrued interest in the statement of cash flows
• Adoption of ‘Net Book Value’ method as one of the valuation techniques to measure the fair value of investments in equity instruments that do not have a quoted market price in an active market

To access the text of the compendium, please click here

Recently, ICAI issued the Guidance note on audit of banks (2024 edition) (the guidance note). The guidance note incorporates the latest developments and changes in the banking landscape. It comprises of two sections:

• Section A – Statutory Central Audit (SCA)
• Section B – Bank branch audit

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

Recently, ICAI released a publication – Commonly found errors in reporting practices. The publication aims to dissect the prevalent errors frequently found in reporting practices. From financial misstatements to inconsistencies in data presentation, it seeks to identify and rectify such issues. The publication comprises of the following three parts:

• Section A – Statutory Central Audit (SCA)
• Section B – Bank branch audit

To access the text of the publication, please click here

The Companies Act, 2013, has provided a strong legal mandate for the crucial role of internal auditors in the corporate governance structure. With a view to aid the members in discharging their duties effectively, in February 2024, ICAI issued the internal audit checklist (the checklist). The checklist is illustrative in nature and consists of four main parts:

• Part I: Introduction
• Part II: Internal audit of specific function
• Part III: Review and reporting, and
• Part IV: Other Aspects.

To access the text of the checklist, please click here

Recently, ICAI issued the Implementation guide on maintenance of Property, Plant and Equipment (PPE) register: Best practices (the implementation guide), thereby providing comprehensive details that can be included in a PPE register. The implementation guide also incorporates the related Schedule III and CARO requirements, as well as the illustrative contents of PPE register format.

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