Dear Members,
Wishing you and your loved ones a very
Happy, Healthy and Prosperous New Year!
It’s New Year, friends! As the New Year
stands before us, it’s another 366 days of opportunities and reasons to be
happy. It’s like a new chapter waiting to be written in the book called LIFE.
So let’s all of us resolve to seize this opportunity and promise ourselves that
we will strive towards happiness and make this world a better place to live in
for ourselves and others around us.
I hope 2020 will mark the beginning of a new
decade of hope, trust and well-being of our profession. As I communicate with you
for the first time at the beginning of this decade, I would like to emphasise
certain recent developments in our profession that will have a great impact on
the way we discharge our professional responsibilities and obligations.
ICAI Code of Ethics: The Code of Ethics issued by the ICAI was aligned with the
International Ethics Standards Board for Accountants (IESBA) Code of Ethics
2005 for the first time in 2009. Now, after a gap of ten years, the ICAI has
decided to revise the Code of Ethics applicable to the profession with effect
from 1st April, 2020. As in the case of the code issued in 2009,
this edition, too, is divided into two parts, Part A representing provisions of
the IESBA Code of Ethics as suitably incorporated after modification, and Part B
representing the domestic provisions of India governing the Chartered
Accountants’ Act, 1949.
Part A of the Code of Ethics was revised in
2018 on the basis of the IESBA Code of Ethics, 2018 edition; and now the ICAI
has proposed a revision of Part B of the Code of Ethics, 2019.
Since the past decade (when this code was
last revised), multiple changes have taken place in the domestic rules and
regulations governing our profession. Changes in the CA Act, 1949, ICAI Council guidelines and decisions and clarifications
of the Ethical Standards Board have been incorporated in the new code. Further,
other developments and contemporary requirements like New Companies Act, 2013,
revision of Accounting Standards (AS) and Standards of Auditing (SA) also
mandated compilatory updating and upgrading Part B of the code.
Various new provisions, clauses, sections
have been proposed to be inserted in Part B such as: Responding to
Non-Compliance of Laws and Regulations; provision of taxation services to the
audit clients; prohibition on management responsibilities to the audit clients;
restrictions on total fees from a client; duty of accountant in case of breach
of Independence Standards; advertisement guidelines; guidelines on website and
social networking sites; affiliations with networks; long association with
firms and so on.
The ICAI will carry out mass awareness and
educational programmes but it is important for us to be aware of the changes to
maintain the inclusive and ethical culture of our profession and ensure that
none of us is caught unaware of these changes.
Report on Audit Quality Review (2018-19): Cases of financial irregularities continue to haunt the corporate
world, both domestically and internationally, bringing to the forefront
concerns on the need to improve the quality of audit services carried out by
auditors. Last year, the Financial Reporting Council of the UK expressed
concern over falling audit quality and partly attributed this deterioration to
a failure to challenge management and show appropriate professional scepticism.
So far, the Quality Review Board (QRB) of ICAI has being carrying out reviews
of listed and other public interest entities and issuing a report on the
observations from the Audit Quality Review carried out by them annually. This report
of the QRB for reviews carried out during financial year 2018-19 was issued in
October, 2019. It highlights the key findings and observations from reviews
carried out on audit quality of 51 entities (which included 51 audit firms, 64
audit files and 22 industries) indicating the QRB’s approach, key trends, their
expectations and other focus areas.
Though the reported observations are from
reviews carried out on the said 51 entities, these deficiencies can act as
check-points for others to improve their audit quality. The report highlights
in detail non-compliance of SA, AS (standard wise) and other relevant
regulatory requirements. Out of the total observations, 66% required
improvements, 33% were generally acceptable and 1% required significant improvement.
I am sure this will make for interesting reading and help in improving the
quality of audit services rendered by us.
Audit Quality Review (AQR) by NFRA: More recently, the NFRA carried out its first AQR on the statutory
audit of IL&FS Financial Services Limited for F.Y. 2017-18. NFRA has
verified the compliance of SA, assessing the audit quality control system of
the audit firm and the extent to which the same was complied with in the
performance of the audit. This report has made some startling observations and
comments on the compliance of independence requirements, role of engagement
partner, communication with those charged with governance, evaluation of risk
of material misstatement, management’s written representations, evaluation of
going concern assumptions and documentation of the audit quality control
system. A reading of this report will also go a long way in overall improvement
in the quality of services rendered by us.
‘Professionalism: It’s NOT the job you
DO, It’s HOW you DO the job.’
With Best Regards,
CA Manish Sampat
President
