Deferrement of SA 701 by 2 years

Loading

Deferrement of SA 701 by 2 years

  1. No. 01/33/2013-CL.V (Pt.) Government of India

Ministry of Corporate Affairs

5th Floor, A Wing, Shastri Bhawan, Dr. Rajendra Prasad Road, New Delhi – 110001 Dated:-12″ April, 2019 TO,

The Secretary,

Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7112, Indraprastha Marg, New Delhi-110002

Sub:- Deferment of Applicability date of Standard on Auditing 701 (SA 701) by two years-reg. Sir,

I am directed to refer to ICAI’s letter no. AASB/MCA/2019-20/01 dated 04.04.2019 on the subject cited above whereby it was intimated to the Ministry that the council of ICAI at its 382″ Meeting held on 25.03.2019 decided to defer the applicability date of SA 701 by two years i.e. up to 31% March, 2020 and the aforesaid decision was communicated to NFRA for its further consideration. In this regard, it is stated that the NFRA has examined the aforesaid decision and submitted its views on the same to this Ministry for further necessary action.

Zz. The matter has been examined and it is found that the SA 701 “Communicating Key Audit Matters in the independent Auditor’s Report” was initially issued by ICAI in May 2016 applicable for audit of financial statements for the period beginning on or after April 1, 2017. Thereafter, the Council of ICAI at its 364% Meeting held in March 2017 /nter-alia deferred the applicability of SA 701 by one year and consequently the said SA 701 was applicable for audits of financial statements for periods beginning on or after 1% April, 2018 on the ground that more time was needed by the members for familiarity with the standard. It is pertinent to mention here that at that time the NFRA was not constituted and therefore the decision taken by the Council of ICAI was treated as final and not further examined by any Independent Authority or the Government of India.

  1. Now, instant deferral of applicability of SA 701 from 1* April, 2018 to 1st April, 2020 by the Council of ICAI has been further examined by NFRA and it has been found that the aforesaid decision of ICAI is not supported on merits by justified and adequate reasoning. The comments of NFRA have been examined in light of reasons mentioned by ICAI for deferral and it has been found that due to the following reasons, further deferral of SA 701 cannot be permitted and it remains applicable for audits of financial statements for periods beginning on or after 1% April, 2018:-
  • SA 701 was issued in May, 2016 with applicability for all audits of the year 2017-18 onwards. On the grounds of lack of adequate time for preparedness the said applicability date of SA 701 was postponed to the financial year 2018-19 onwards. Effectively, a period of almost two years was available for awareness building and training of the Auditors and any practical difficulties can be addressed only after implementation of the SA 701.
  • SA 701 does not impose any new substantive procedural requirements on the auditors. The Key Audit Matters (KAM) referred to in SA 701 are to be chosen and picked out from matters already communicated to and discussed with those charged with governance (TCWG). The auditor is only required to filter out the KAM from out of the matters discussed with TCWG as the matters of most significance in the audit. Therefore, what is required by this standard is only a presentation of important matters chosen from amongst those matters that would or should have been discussed with TCWG. 9s
  • This SA 701 applies to audits of financial statements of listed entities and circumstances when the auditor otherwise decides to communicate KAM in the auditor’s report. Therefore, the stakeholders are largely the public who make investments in the listed entities after reading the Auditor’s report. By communicating KAM in auditor’s report, the communicative value of the Report will be enhanced by providing greater transparency about the audit. This will provide the additional information to intended users of the financial statements so as to enable them to understand the entity and areas of significant management judgement in the audited financial statements.
  • The applicability of SA 701 to banks and insurance companies in view of their decision for deferral of implementation of Ind AS by them is not a justified reason for deferral of implementation of SA 701. As per clause 5 of the SA 701 the auditor is duty bound to apply this SA 701 on any circumstances when the auditor otherwise decides to communicate KAM in his audit report. The auditor has to report on the financial statements which he has audited irrespective of the fact that the financial statements are prepared on Ind AS or not.
  • It is settled law that once the law is enforced and already in force, then it cannot be deferred further. From 1° April, 2018, the SA 701 is already in force and therefore, further deferral to a later date is not allowed.
  1. This issues with the approval of competent authority.

Yours faithfully,

(Atma Sah) Deputy Director Tel:- 23386065 Copy to:- (i) The Chairperson, National Financial Reporting Authority (NFRA)

8″ Floor, HT House, 18-20, K.G. Marg, New Delhi-110001………. with reference to your D.O.s No. NF- 11012/3/2019 dated 28.03.2019 and dated 4.4.2019.

  • Guard File.

 

Menu