Regulatory updates

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