ICAI Council Clears Two More Auditing Standards to Enhance Quality of Audits

The Council of the Institute of Chartered Accountants of India at its 286th meeting held on March 8, 2009 cleared two more Standards on Auditing (SAs), i.e., Revised SA 500, Audit Evidence and SA 720, The Auditors Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements in the direction of enhancing the quality of audits.

Revised Standard on Auditing (SA) 500, Audit Evidence

Audit evidence is fundamental aspect of an audit on which the final audit opinion and the audit report is based. The quality and effectiveness of an audit is, therefore, to a large extent affected by the adequacy and appropriateness of the auditors procedures in gathering and evaluating the audit evidence. Though the Council of the Institute had in May 1988 issued a Standard on Audit Evidence, the Revised version of this Standard cleared today contains greater guidance for the auditors on critical aspects of audit evidence such as what constitutes sufficient appropriate audit evidence, information to be used as audit evidence, factors to consider in selecting items for testing, how to respond in case of inconsistency in or doubts over reliability of audit evidence. In other words, the Revised Standard in principles and procedures to be followed by them to obtain and evaluate audit evidence which is sufficient and appropriate for the purpose of their audit.

This Revised Standard is effective for audits of all financial statements for periods beginning on or after April 1, 2009.

Standard on Auditing (SA) 720, The Auditors Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements

The responsibility the auditor, in an audit of financial statements, is to express an opinion on the truth and fairness of the financial statements, the basic objective of an audit being to lend credibility to the financial statements. In a number of cases, especially companies, the annual reports or other such documents that contain audited financial statements and audit report thereon, issued to stakeholders, contain a lot of other information which is related/ unrelated to the financial statements. For example, reports by managements/ directors, financial ratios, etc. The Standard is a first of its kind Standard to have been issued by the Institute and requires the auditor to read such other information to identify any material inconsistencies vis a vis the audited financial statements since these can undermine the credibility of those financial statements and the audit report thereon. The Standard contains detailed guidance on auditors procedures where such material inconsistency is identified or in the process of reading such other information, any apparent misstatement of facts come to the attention of the auditor.

This Standard is effective for audits of all financial statements for periods beginning on or after April 1, 2010.

Needless to add that both the above Standards are based on the corresponding International Standards issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. Further, the Institute would also bring out implementation guides for both the above Standards.

About the Institute

The Institute of Chartered Accountants of India is second largest accounting body worldwide with more than 1,50,000 members and 4,50,000 active students. It imparts education and conduct examination for chartered accountancy Curriculum. It also formulates Accounting, auditing and assurance standards harmonized with the corresponding international standards. In order to service members and the students, it has 5 regional councils, 118 branches throughout the country and 21 chapters abroad. It is only professional body in the country which has made compulsory Professional education mandatory for its members. The ICAI also exercises disciplinary jurisdiction over its members.