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April 2022

On 7 April 2022, the International Auditing and Assurance Standards Board (IAASB) releasedISA 600 (Revised): Special Considerations-Audits of Group Financial Statements (Including the Work of Component Auditors). ISA 600 (Revised) includes new and revised requirements that align the standard with the recently revised standards, such as:

  • International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements,
  • ISA 220 (Revised), Quality Management for an Audit of Financial Statements, and
  • ISA 315, Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and its Environment.

ISA 600 (Revised) intends to encourage proactive management of quality at the group management and component level, reinforce the need for robust communication and interactions during the group audit and foster an appropriately independent and challenging mindset of the auditor.

Some of the significant changes and clarifications specified in ISA 600 (Revised) include:

  • Risk-based approach: IAASB has introduced the risk-based approach framework for planning and performing a group audit engagement in order to lay greater emphasis on identifying and assessing the risks of material misstatement and performing further audit procedures in response to the assessed risks. Under the risk-based approach, component auditors can be, and often are, involved in all phases of the group audit.
  • Restrictions on access to information and people: ISA 600 (Revised) clarifies the various types of restrictions that might exist, such as restrictions on access to people and information (e.g., access to component management, those charged with governance of the component, component auditors, or information at the component) and component auditor audit documentation. The revised standard also provides guidance on ways to overcome such restrictions.
  • Materiality considerations: ISA 600 (Revised) clarifies how the concepts of materiality and aggregation risk apply in a group audit.
  • Documentation: ISA 600 (Revised) prescribes enhanced documentation requirements and application material to emphasise the linkage to the requirements in ISA 230, Audit Documentation, and the documentation requirements in other relevant ISAs. It also highlights the importance of the group auditor’s review of component auditor’s audit documentation. Clarification is also provided on what the group auditor may need to document in different situations, including when there are restrictions on access to component auditor audit documentation.
  • Communication and Interactions: ISA 600 (Revised) strengthens and clarifies the importance of two-way communications between the group auditor and component auditor. It includes various aspects of the group auditor’s interaction with component auditors, such as communicating relevant ethical requirements, determining competence and capabilities of the component auditor, and determining the appropriate nature, timing, and extent of involvement by the group auditor in the work of the component auditor.

Effective date: ISA 600 (Revised) will be effective for audits of group financial statements for periods beginning on or after December 15, 2023.

To access the text of ISA 600 (Revised), please click here

Action Points for Auditors

  • Auditors acting as component auditors of subsidiary companies based in India of an overseas parent would need to comply with the provisions of ISA 600 (Revised). Auditors of such group entities should take note of these changes, as there would be enhanced involvement of the component auditors in all phases of the group audit.
  • Under the risk-based approach, component auditors could be, and often are, involved in all phases of the group audit. Thus, component auditors should assist the group engagement team in assessing the risks of material misstatement at the group financial statement level and assertion level and in determining the nature, timing, and extent of audit procedures, as required under ISA 330, The Auditor’s Responses to Assessed Risks.
  • Auditors should refer the guidance specified in the standard on ways to overcome various types of restrictions that might exist. If the group engagement partner concludes that group management cannot provide the engagement team with access to information or unrestricted access to persons within the group due to restrictions that are outside the control of group management, the group engagement partner should consider the possible effects on the audit opinion.
May 2022

The International Auditing and Assurance Standards Board (IAASB) has released non-authoritative guidance on fraud in an audit of financial statements, The Fraud Lens –Interactions Between ISA 240 and Other ISAs. The guidance has been developed by the Fraud Task Force of the IAASB to explain the relationship between, and linkage of, International Standards on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, and other ISAs when conducting an audit.

Since IAASB recently approved a project proposal to revise ISA 240 in order to enhance or clarify an auditor’s responsibilities with respect to fraud in an audit of financial statements, the guidance illustrates the application of ISA 240 in conjunction with the other ISAs such as ISA 2008, 3159, 33010, 55011 and so on.

  1. Overall Objective of the Independent Auditor, and the Conduct of an Audit in Accordance with International Standards on Auditing
  2. Identifying and Assessing the Risks of Material Misstatement
  3. The Auditor’s Responses to Assessed Risks
  4. Related Parties

To access the text of the guidance, please click here

Action points for auditors

A clear understanding of the relationship between, and linkage of ISA 240 and the other ISAs would assist the auditors to apply a fraud lens when planning and performing audit procedures, thus ensure fraud-related audit procedures are embedded throughout the audit process. This would ultimately help the auditors in fulfilling their responsibilities under ISA 240 and other ISAs effectively

In December 2020, IAASB had released ISA 220 (Revised), Quality Management for an Audit of Financial Statements. One of the key changes introduced in ISA 220 (Revised) related to the definition of Engagement Team (ET), so as to improve quality management at the overall firm and engagement level. The revised definition of ET in ISA 220 (Revised) is as follows:

All partners and staff performing the audit engagement, and any other individuals who perform audit procedures on the engagement, excluding an auditor’s external expert12 and internal auditors who provide direct assistance on an engagement13.

This revision ensured that all individuals, regardless of their location or employment status, who have performed audit procedures on the engagement, would be considered as part of the ET.

To help users of its standards adapt to the clarified and updated definition of ET, IAASB has released a new fact sheet. The new fact sheet addresses the clarified definition and its possible impacts, including recognition of the fact that ETs may be organised in a variety of ways, including across different locations or by the activity they are performing. The fact sheet also includes a diagram that walks users through the specific inclusions and exclusions from the definition, as is given in the next page.

(Source: ISA 220 (Revised), Definition of Engagement Team, fact sheet issued by IAASB, May 2022)

  1. ISA 620, Using the Work of an Auditor’s Expert, paragraph 6(a), defines the term “auditor’s expert”.
  2. ISA 610 (Revised 2013), Using the Work of Internal Auditors, establishes limits on the use of direct assistance. It also acknowledges that the external auditor may be prohibited by laworregulation from obtaining direct assistance from internal auditors. Therefore, the use of direct assistance is restricted to situations where it is permitted.

Action points for auditors

  • In coordination with the IAASB, the International Ethics Standard Board for Accountants (IESBA) is undertaking a project to align the definition of ET in the Code with the revised definitions of the same term in ISA 220 (Revised) and ISQM 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements. The project is also addressing the implications of the change to the ET definition from an independence perspective. Thus, the auditors should consider the impact of the revised definition in conjunction with the IESBA proposals with regard to their independence requirements for audits to be conducted under ISAs. This might result in deployment of updated policies and procedures, awareness raising and training initiatives. Thus, auditors should evaluate the impact of the proposed changes on their overall policy framework.
  • The definition of an engagement team under SA 220, Quality Control for an Audit of Financial Statementsis different as compared to the definition of engagement team as defined in ISA 220. As per SA 220, engagement team includesall personnel14performing an engagement, including any experts contracted by the firm in connection with that engagement. The term “engagement team” excludes individuals within the client’s internal audit function who provide direct assistance on an audit engagement when the external auditor complies with the requirements of SA 610 (Revised).

Auditors performing engagements in accordance with ISAs, or auditors acting as component auditors, in a group audit where the principal auditor is based in a country outside India and is required to comply with provisions of ISA 220 should take note of these amendments and comply with relevant independence requirements.

There are no updates in June 2022
July 2022

In April 2022, the International Ethics Standards Board for Accountants (IESBA) had released the revised definition of a ‘Public Interest Entity’ (PIE) together with other revised provisions in the International Code of Ethics for Professional Accountants (including International Independence Standards) (the IESBA Code). The changes to the IESBA Code inter alia require firms to publicly disclose when the independence requirements for PIEs have been applied in an audit of financial statements.

In order to operationalise the changes stipulated in the IESBA Code, on 6 July 2022, the International Auditing and Assurance Standards Board (IAASB) issued an Exposure Draft (ED) on certain narrow scope amendments to International Standards on Auditing (ISA) 700 (Revised), Forming an Opinion and Reporting on Financial Statements, and ISA 260 (Revised), Communication with Those Charged with Governance.

Proposed revisions to ISA 700 (Revised)
ISA 700 (Revised)27 requires auditors to identify the jurisdiction of origin of the relevant ethical requirements or refer to the IESBA Code. However, currently, it does not require auditors to further specify whether differential independence requirements in the relevant ethical requirements that are applicable only to audits of financial statements of certain entities were applied, such as the independence requirements for PIEs in the IESBA Code.
In order to align the guidance specified in ISA 700 with the independence requirements prescribed by IESBA, IAASB has identified two approaches that would require public disclosure that differential independence requirements for audits of financial statements of certain entities were applied. These are:

  1. A conditional requirement that applies only when the relevant ethical requirements require public disclosure that differential independence requirements for audits of financial statements of certain entities were applied. If the condition is met, the auditor is required to indicate in the auditor’s report that the relevant ethical requirements for independence for those entities were applied, or
  2. A non-conditional requirement that would apply in all circumstances when differential independence requirements for audits of financial statements of certain entities were applied, even if the relevant ethical requirements do not require the auditor to publicly disclose that such differential independence requirements were applied.

The IAASB has proposed amendments to ISA 700 (Revised) based on the conditional approach and has also proposed relevant application material.

Proposed revisions to ISA 260 (Revised)
ISA 260 (Revised) specifies the guidance regarding the communication of matters related to independence28. Accordingly, in line with the abovementioned amendments, IAASB opined that revisions to ISA 260 (Revised) would be necessary, in order to increase transparency with those charged with governance that differential independence requirements for certain entities have been applied. Accordingly, new application material has been proposed to ISA 260 (Revised) to correspond with the revisions to ISA 700 (Revised).
Comments on the ED have been requested by 4 October 2022.

  1. Paragraph 28(c) of ISA 700 (Revised)
  2. In case of listed entities, paragraph 17(a) of ISA 260 (Revised) requires auditors to communicate with those charged with governance a statement that the engagement team and others in the firm as appropriate, the firm and, when applicable, network firms have complied with relevant ethical requirements regarding independence.

To access the text of IAASB ED, please click here

To access the text of IESBA pronouncement on PIE provisions, please click here

Action points for auditors

  • The auditor’s report is a key mechanism for communication to users of financial information about the audit that was carried out. Accordingly, the proposed revisions to ISA 700 (Revised) would enable consistency and comparability in auditor reporting globally. The IAASB is pursuing a project to consider a number of matters relevant to its standards arising from the finalisation of the IESBA’s PIE provisions, including whether and how to address the transparency requirement noted above in the IAASB’s standards. Since the standards on auditing applicable to audits in India are reasonably aligned with the ISAs, amendments in the ISAs may be adopted by the Indian regulators to be a part of the standards on auditing. Accordingly, auditors should watch this space for further developments.
  • The proposed amendments are expected to impact the auditor’s report, accordingly members of the profession are encouraged to utilise the comment period for providing their feedback and suggestions, while the regulations are in the initial stages of preparation.

In December 2019, ISA 315, Identifying and Assessing the Risks of Material Misstatement was revised, with the aim to include a more robust and consistent risk identification and assessment framework. The revised standard set out enhanced requirements, in order to support the auditor’s risk assessment process, intended to support more focused responses to the auditor’s risk assessment in accordance with ISA 330, The Auditor’s Responses to Assessed Risks. ISA 315 (Revised 2019) is effective for audits of financial statements for periods beginning on or after 15 December 2021.

In this regard, on 27 July 2022, IAASB released its First-Time Implementation Guide (IG) on ISA 315 (Revised 2019). The guide focuses on the more substantial changes that were made to ISA 315 (Revised 2019) and would help stakeholders understand and apply the revised standard as intended

To access the text of the IG, please click here

August 2022

On 1 August 2022, the International Auditing and Assurance Standards Board (IAASB) issued a non-authoritative publication to address some of the common questions related to reporting going concern matters in an auditor’s report. Specifically, the publication focuses on the use of and interrelationship between the Material Uncertainty Related to Going Concern (MURGC), Key Audit Matters (KAM) sections, and the Emphasis of Matter (EOM) paragraphs in an auditor’s report, prepared in accordance with the International Standards on Auditing (ISAs). The publication also includes a diagram that walks users through the use of MURGC, KAM sections and EOM paragraphs and the corresponding impact on auditor reporting:

(Source: IAASB Frequently Asked Questions - Reporting Going Concern Matters in the Auditor’s Report, August 2022)

To access the text of the IAASB publication, please click here

Action points for auditors

Due to the COVID-19 pandemic, various instances came to light wherein the existence of material uncertainty led to a significant doubt on the entity’s ability to continue as a going concern. In this regard, the IAASB publication reiterates the basic principles of MURGC, KAM and EOM and their corresponding implications on an audit opinion and an auditor’s report.

There are no updates in September 2022
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November 2022

On 12 February 2021, the International Accounting Standards Board (IASB) issued narrow scope amendments to International Accounting Standard (IAS) 1, Presentation of Financial Statements. Basis the amendments introduced, companies are required to disclose their material accounting policy information, instead of significant accounting policies. The amendments are effective for annual reporting periods beginning on or after 1 January 2023, with early application permitted.

In this regard, on 16 November 2022, the International Auditing and Assurance Standards Board (IAASB) issued a guidance to enable users of financial information understand the impact of amendments to IAS 1 on the International Standards on Auditing (ISAs) (the guidance).

As per the guidance, few key aspects of the audit engagement that could be impacted as a result of amendment to IAS 1 are as follows:

  • Financial reporting process: When management prepares financial statements as per IFRS, the auditor will need to evaluate the appropriateness of management’s disclosures, including understanding the effect of amendments to IAS 1 on the entity’s financial reporting process. Auditors will also need to assess the related impact on the auditor’s report
  • ISAs relevant to auditors’ work on disclosures: Various ISAs contain requirements that are relevant to the auditor’s work on disclosures in the financial statements, which include34 an entity’s disclosure of material accounting policy information as required in accordance with the amendments to IAS 1. Auditors will need to apply these ISAs while reviewing the management’s compliances with amendments to IAS 135.
  • Other aspects of the audit: Other aspects of the audit that may be impacted include the audit engagement letter, communicating deficiencies in internal control to and requesting written representations from management and, where appropriate, those charged with governance.

The guidance clarifies that the amendments to IAS 1 do not impact the principles-based requirements of the ISAs. However, the same would impact the illustrative auditor reports throughout the ISAs – where the terminology of the illustrative auditor reports will have to be aligned with the amendments to IAS 1.

To access the text of the guidance, please click here

To access the text of the announcement of IASB with regard to amendments made to IAS 1, please click here

  1. if the applicable financial reporting framework is IFRSs.
  2. These ISAs are relevant to the auditors’ identification and assessment of risks of material misstatement related to disclosures in the financial statements, the auditor’s responses to assessed risks, evaluating information in disclosures, communicating significant findings from the audit, and reporting

Action Points for Auditors

Since the amendments would be effective for annual reporting periods beginning on or after 1 January 2023, auditors should refer the publication for understanding the effect of the amendments on the entity’s financial reporting process and evaluate the changes required to implement the amendments, including the consequent impact on auditor’s report.

Ind AS are largely converged with IFRS, and though similar amendments to Ind AS 1, Presentation of Financial Statements have not been issued yet, they may be issued and notified by the Ministry of Corporate Affairs (MCA). Auditors should monitor the amendments that would be issued by the MCA, where similar amendments have been notified, reference to the guidance may also be made.

There are no updates in December 2022
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December 2023

Recently, the International Auditing and Assurance Standards Board (IAASB) issued the International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCEs). It is a new standalone auditing standard and contains all requirements necessary to obtain reasonable assurance regarding whether the financial statements as a whole are free from material misstatements, whether due to fraud or error. The ISA for LCEs cannot be used if:

  • Law or regulation prohibits the use of the ISA for LCE or specifies the use of auditing standards other than ISA for LCE for the audit of the financial statements in that jurisdiction
  • Entity is a listed entity
  • Entity falls into one of the following classes:
  • An entity one of whose main functions is to take deposits from the public
  • An entity one of whose main functions is to provide insurance to the public, or
  • A class of entities where use of the ISA for LCE is prohibited for that specific class of entity by a legislative or regulatory authority or relevant local body with standard-setting authority in the jurisdiction.
  • Certain group audits

The standard comprises of nine parts:

  • Other conditions relating to issuance of ZCZP instruments: SEBI has laid down certain other conditions w.r.t. the issuance of ZCZP instruments. Some of these include:
  • Part 1: Fundamental concepts and general principles
  • Part 2: Audit evidence and documentation
  • Part 3: Engagement quality management
  • Part 4: Acceptance or continuance
  • Part 5: Planning
  • Part 6: Risk identification and assessment
  • Part 7: Responding to assessed risks of material misstatement
  • Part 8: Concluding, and
  • Part 9: Forming an opinion and reporting.

Effective date: The ISA for LCEs would be effective for audits of financial statements for periods beginning on or after 15 December 2025. Early adoption is permitted.

To access the text of the standard, please click here

There are no updates in January 2024
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November 2024

The International Auditing and Assurance Standards Board (IAASB) has introduced ISSA 5000 General Requirements for Sustainability Assurance Engagements , a new standard for Sustainability Assurance Engagements. This standard aims to build trust and confidence among investors, regulators, and other stakeholders in sustainability information. It aims to serve as a comprehensive, standalone standard appropriate for all types of sustainability assurance engagements. It would apply to sustainability information reported across any sustainability topic and prepared under multiple frameworks.

ISSA 5000 would not address sustainability information which is required to be included in the entity’s financial statements, in accordance with the applicable financial reporting framework.

Some of the key requirements of ISSA 5000 are given below:

  • Quality management: ISSA 5000 requires the engagement leader to be a member of a firm that applies either the International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (ISQM 1), or other professional or regulatory requirements which are at least as demanding as ISQM 1.
  • Preconditions for an audit engagement: As preconditions, sustainability matters within the scope of the engagement are appropriate, such that they are identifiable and capable of consistent measurement or evaluation against the applicable criteria, and the resulting sustainability information can be subjected to procedures for obtaining sufficient and appropriate evidence.
  • Considering materiality: To determine whether the sustainability information is free from material misstatement, the practitioner should consider materiality for qualitative disclosures and determine materiality for quantitative disclosures. Further, if double materiality is required to be applied by the reporting framework or entity-developed criteria, the practitioner must consider both financial and impact materiality perspectives.
  • Risk assessment: As part of risk assessment, practitioners should understand the entity and its environment, make inquiries with appropriate parties and understand the components of an entity’s internal control. This will enable auditors to determine the nature, timing and extent of procedures required to be adopted.
  • Responding to the risks of material misstatement: This would be done by testing the operating effectiveness of controls and adopting substantive procedures on disclosures that are material.
  • Reporting and documentation: The engagement team would need to form a conclusion on whether the sustainability information is free from material misstatement post evaluating the sufficiency and appropriateness of evidence obtained. Additionally, it should be ensured that the assembly of the final engagement file should be completed within not more than 60 days after the date of assurance report.

Effective date: ISSA 5000 applies to all assurance engagements on sustainability information, regardless of presentation, and covers both reasonable and limited assurance engagements. The standard is effective for periods beginning on or after 15 December 2026, or at a specific date on or after 15 December 2026, with earlier adoption permitted.

Action points for auditors

  • ISSA 5000 aims to serve as the global baseline, standalone sustainability assurance standard for the companies in India as well as abroad. Further, IAASB has aligned most of the provisions of ISSA 5000 with the extant ISAE 3000 (revised), in order to ensure interoperability for the assurance.
  • ISSA 5000 is practitioner-agnostic and would therefore permit assurance to be provided by people with quite differing backgrounds, such as audit firms or sustainability specialists.

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