RECENT AMENDMENTS IN AUDITING STANDARDS Presented by: Mukesh Thakur

Purposes of Changes in Standards To keep alignment with the International Practice. To converge with International Standards on Auditing.

AGENDA Introduction of Standard on Quality Control 1. Renumbering and rearrangement of Existing Auditing Standards. Revision of Some existing standards.

Standards on Quality Control (SQCs)

Purpose of introduction SQC 1 Quality control for Firms that Perform Audit and Reviews of Historical Financial Information, and other Assurance and Related Services Engagements Purpose of introduction There was no guidelines to the firms responsibilities for its system of quality control for the services provided by them. There has been different standards issued a on different aspects. Hence, there is need of one standard which correlate and harmonize each standard. SQC – 1 took birth to mitigate the above requirements. This standard will play a role as Mother Standard.

Scope and Applicability The standard is to apply on Chartered Accountant Firms and Proprietorship. This will cover all the services falling under the engagement Standards. The effective date of the standard is April 1, 2009.

Objective of the Standard The firm should establish a system of quality control designed to provide it with reasonable assurance that The firm and its personnel comply with professional standards and regulatory and legal requirements and That the Reports issued by the firm or engagement partner(s) are appropriate in the circumstances.

Elements of a system of quality control Leadership Responsibilities Ethical Requirements Acceptance and Continuance of client relationships and specific engagements. Human resource Engagement Performance Monitoring

Leadership Responsibilities for quality within the firm CEO or managing partner of the firm should establish policies and procedures designed to promote an internal culture based on the recognition that the quality is essential. Any person(s) assigned the operational responsibilities should be sufficient and appropriate experience and ability and the necessary authority to assume the responsibility.

Ethical Requirements The policies and procedure of the firm should be designed to provide reasonable assurance that the firm and its personnel comply relevant ethical requirement as prescribed in Chartered Accountants Act, 1949. These includes Integrity Objectivity Professional Competence and due care Confidentiality and Professional Behavior. (ICPOP)

Ethical Requirements cont… Policies and procedure of firm should emphasize on following principals The leadership of the firm Education and Training Monitoring A Process of Dealing with non compliances Independence

Ethical Requirements cont… Independence - The standard has laid down detailed guidelines to ensure the independence of the firm, personnel or others as required by the code. These can be summarized as follows Policies designed by the firm should contain Communication of independence requirement to personnel or others, identity and removal of threats to independence The policy designed by the firm should require The engagement Partner should provide relevant information about the engagement to firm. The accumulation and communication of relevant information to appropriate personnel so that threats of independence can be readily identified and resolved. At least annually, the firm should obtain written confirmation of compliance with its policies and procedure on independence from all firm personnel required to be independent.

Ethical Requirements cont… The standard discusses familiarity threats that arises when the firm uses the same senior personnel on assurance engagement for a long period of time. The firm should reduce this threats to acceptable level. In case of audit of listed companies, engagement partner should be rotated after a pre-defined period not more than 7 years.

Can comply with the ethical requirements Acceptance and continuance of client relationships and specific requirements The policies and procedure of the firm should be such that it ensure that It has considered the integrity of the client and does not have information that would lead to conclude that the client lacks integrity Is competent to perform the engagement and has capabilities, time and resources to do so Can comply with the ethical requirements

Acceptance and continuance of client relationships and specific requirements cont. Examples of matters that should be ensured to check integrity of the client Business reputation of clients Key management Personnel (KMPs), Owners, related parties etc. The nature of the client business Attitude of KMPs etc. towards such matters as aggressive interpretation of Accounting Standards and internal control Environment. Whether the client is aggressively concerned with maintaining the firms fees as low as possible. Indications of an inappropriate limitation of scope of work. Information that the client might be involved in money laundering or other criminal activities. The reason for proposed appointment of firm and non reappointment of previous firm.

Human Resource The policies and procedure of the firm should ensure that it has sufficient personnel with the capabilities, competence and commitment to ethical principles necessary to perform its engagements in accordance with the legal requirements and to enable the firm to issue reports that is appropriate in the circumstances. These policies should cover Recruitment Performance evaluation Capabilities Competence Career Development Promotion Compensation and Estimation of personnel needs.

Human Resource cont. Capabilities and competencies can be developed through Professional Education Continuing Professional Development, including training Work Experience Coaching by more experienced staff. The standard requires that each engagement should be assigned to engagement partner having such capability. The role and responsibilities of such partner should be defined and communicated to the client. Assignment should be given to staff having appropriate capabilities, competence and time to perform the engagement in accordance with professional standards and regulatory and legal requirement.

Human Resource cont. The policies and procedure of the firm should also ensure Engagement performance Consultation Strategy in case of Differences of opinion within the engagement team Engagement quality control Review Engagement Documentation Confidentiality, integrity, accessibility and retrievability of engagement documentation Retention of Engagement Documentation as per requirement of law or regulation.

Monitoring The policies and procedure relating to system of quality control of the firm should be relevant, adequate, operating effectively and complied with in practice. Such policies and procedure should include ongoing consideration and evaluation of the firm’s system of quality control, including periodic inspection of selected engagement. Deficiencies observed as a result of monitoring process should be Evaluated Communicated to engagement partner Necessary remedial action should be taken as per the nature of the deficiency.

RENUMBERING AND REARRANGEMENT OF EXISTING STANDARDS

Engagement and other Quality control Standards Standards on quality control SQC 1 ‘Quality control for firms that perform Audit and reviews of historical financial information and other Assurance and Related Services Audit and Reviews of Historical Financial Information Assurance Engagements other than Audits or Reviews of Historical Financial Information Related Services

Audit and Reviews of Historical Financial Information Standards on Auditing (SAs) – 100 to 999 Standards on Review Engagements (SREs) 2000 to 2699 Standards on Auditing Introductory Matters 100 to 199 General Principles and Responsibilities 200 to 299 Risk Assessment and Response to Assessed Risks 300 to 499 Audit Evidence 500 to 599 Using works of others 600 to 699 Audit conclusions and Reporting 700 to 799 Specialized Areas 800 to 899 Standards on Review Engagements

Audit and Reviews of Historical Financial Information cont… Introductory Matters (drafted) General Principles and Responsibilities SA NAME AAS SA 200 Basic Principles Governing an Audit AAS 1 SA 200A Objective and Scope of the Audit of Financial Statements AAS 2 SA 210 Terms of Audit Engagement AAS 26 SA 220 Quality control for Audit work AAS 17 SA 230 Documentation AAS 3 SA 240 The auditor’s responsibilities to consider Fraud and Error in an Audit of Financial Statements (revised as ‘The auditor’s responsibilities relating to Fraud in an Audit of Financial Statements’) AAS 4 SA 250 Consideration of Laws and Regulations in an Audit of Financial Statements AAS 21 SA 260 Communication of Audit Matters with those charged with governance AAS 27 SA 299 Responsibility of Joint Auditors AAS 12

Audit and Reviews of Historical Financial Information cont… Risk Assessment and Responses to Assessed Risks SA Name AAS SA 300 Audit Planning (revised as planning an audit of financial statements) AAS 8 SA 310 Knowledge of the Business AAS 20 SA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment New SA 320 Audit Materiality AAS 13 SA 330 The Auditor Responses to Assessed Risks SA 400 Risks Assessments and Internal Control AAS 6 SA 401 Audit in a computer Information Systems Environment AAS 29 SA 402 Audit Considerations Relating to Entities Using Service Organisations AAS 24

Audit and Reviews of Historical Financial Information cont… Audit Evidence SA Name AAS SA 500 Audit Evidence AAS 5 SA 501 Audit Evidence – Additional Considerations for specific items AAS 34 SA 505 External Confirmations AAS 30 SA 510 Initial Engagements – Opening Balances AAS 22 SA 520 Analytical Procedures AAS 14 SA 530 Audit Sampling AAS 15 SA 540 Auditing of Accounting Estimates AAS 18 SA 550 Related Parties AAS 23 SA 560 Subsequent Events AAS 19 SA 570 Going Concern AAS 16 SA 580 Representation by management (revised Written Representations) AAS 11

Audit and Reviews of Historical Financial Information cont… Using work of others Audit Conclusions and Reporting Specialized Areas (drafted) SA Name AAS SA 600 Using the work of another Auditor AAS 10 SA 610 Relying on the work of an Internal Auditor AAS 7 SA 620 Using the work of an Expert AAS 9 SA Name AAS SA 700 The Auditor’s Report on Financial Statements AAS 28 SA 710 Comparatives AAS 25

Audit and Reviews of Historical Financial Information cont… Standards on Review Engagements SRE 2400 Engagement to Review Financial Statements (AAS 33)

Standards on Assurance Engagements (SAEs) 3000 to 3699 Assurance Engagements other than Audits or Reviews of Historical Statements Standards on Assurance Engagements (SAEs) 3000 to 3699 SAE 3400 The examination of Prospective Financial Statements (AAS 35)

Standards on Related Services (SRSs) 4000 to 4699 SRS 4400 Engagement to perform Agreed upon procedures Regarding Financial Statements (AAS 32) SRs4410 Engagements to compile Financial Information (AAS 31)

Revision of Existing Standard and insertion of new Standards

Revision of Existing Standard and insertion of new Standards Standards that has been revised SA 240 (AAS 4) Auditor’s Responsibility to consider Fraud and Error in an audit to Financial Statements (Revised as “Auditor’s Responsibilities Relating to Fraud in an audit of Financial Statements”) SA 300 (AAS 8) Audit Planning (Revised as “Planning an Audit of Financial Statements) SA 580 (AAS 11) Representation by Management (Revised as “Written Representations) New Standards Introduced SA 315 Identifying and assessing the Risks of Material Misstatement through understanding the Entity and its environment. SA 330 The Auditor Responses to an Assessed Risks.