By Himanshu V. Kishnadwala
Chartered Accountant
Audit
Reporting as per revised Standard on Auditing (SA 701)
Compilers’
Note
The
International Auditing and Assurance Standards Board (IAASB) has issued revised
and new International Standards on Auditing (ISAs) for audit reporting. These
audit reporting ISAs are applicable for all reports issued after 15th
December, 2016 onwards.
With a
view to align the Standards on Auditing (SAs) in India, ICAI has also issued
revised reporting standards which are effective for audits of financial
statements for periods beginning on or after 1st April, 2017. The
said date was subsequently deferred by 1 year to now become effective for
audits of financial statements for periods beginning on or after 1st April,
2018. ICAI has also issued an implementation guide to SA 701.
One of the
key features of the revised audit reports is the inclusion of a paragraph
called “Key Audit Matters” (KAM). KAM are defined as those matters that, in the
auditor’s professional judgment, were of most significance in the audit of the
financial statements of the current period. KAM are selected from matters
communicated with TCWG.
Given
below is an illustration of the KAM paragraph included in the audit of interim
consolidated financial statements.
Infosys
Ltd: (9 months ended 31st December, 2018)
Key
Audit Matters
Key audit matters are those
matters that, in our professional judgment, were of most significance in our
audit of the financial statements of the current period. These matters were
addressed in the context of our audit of the interim consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
|
KEY AUDIT MATTER
|
RESPONSE TO KEY AUDIT MATTER
|
|
Accuracy of revenues and onerous obligations in
respect of fixed price contract involves critical estimates
Estimated effort is a critical estimate to determine revenues
and liability for onerous obligations.
This estimate has a high inherent uncertainty as it requires
consideration of progress of the contract, efforts incurred till date and
efforts required to complete the remaining contract performance obligations.
Refer Notes 1.5a and 2.16 to the Interim Consolidated Financial
Statements.
|
Principal Audit Procedures
Our
audit approach was a combination of test of internal controls and substantive
procedures which included the following:
? Evaluated the design of internal controls
relating to recording of efforts incurred and estimation of efforts required
to complete the performance obligations.
?Tested the access and
application controls pertaining to time recording, allocation and budgeting
systems which prevents unauthorised changes to recording of efforts incurred.
? Selected a sample of
contracts and through inspection of evidence of performance of these
controls, tested the operating effectiveness of the internal controls
relating to efforts incurred and estimated.
? Selected a sample of
contracts and performed a retrospective review of efforts incurred with
estimated efforts to identify significant variations and verify whether those
variations have been considered in estimating the remaining efforts to
complete the contract.
? Reviewed a sample of
contracts with unbilled revenues to identify possible delays in achieving
milestones, which require change in estimated efforts to complete the
remaining performance obligations.
? Performed analytical
procedures and test of details for reasonableness of incurred and estimated
efforts.
Conclusion
Our procedures did not identify any material exceptions.
|
|
Reasonableness of carrying amount of assets
reclassified from “held for sale”
Carrying amounts of assets reclassified from “held for sale” is
at the lower of cost and recoverable amounts.
Recoverable amounts of assets reclassified from “held for sale”
have been estimated using management’s assumptions relating to business
projections which consist of significant unobservable inputs.
Refer Note 1.5f and 2.1.2 to the Interim Consolidated Financial
Statements.
|
Principal Audit Procedures
Our audit procedures consisted of challenging management’s key
assumptions relating to business projections and other inputs used by the
external valuer in computing the value in use to determine the recoverable
amounts. We have also considered the sensitivity to reasonable possibility of
changes in key assumptions and inputs to ascertain whether these possible
changes have a material effect on the recoverable amounts.
Conclusion
The assumptions and inputs have been appropriately considered in
estimating the recoverable amounts.
|
