Digital assurance will boost audit quality: ICAI president
New Delhi, Dec 7, 2022
Accounting rule-maker Institute of Chartered Accountants of India (ICAI) is taking steps to scale up sustainability reporting and improve the quality of financial statements and audits.
ICAI President Debashis Mitra said the Institute will regulate social auditors, mandate how accountants should verify information supplied by managements and where it concurs and differs with key audit reform proposals under discussion in government. Edited excerpts:
What are the steps on the table to improve audit quality?
We are now preparing a technical guide on digital assurance for third party confirmation. This I think will come up before the ICAI Council on 15 December. That is very important. For example, bank statements: an auditor needs to have assurance whether the bank balance is right or not. He will get the ID of the client’s bank account, go to the bank account, and check all bank transactions. These are all third-party assurance. The bank is the third party for the auditor. The auditor wants to verify the bank transactions. Auditors also wants to verify GST transactions—how much is the sale as per GST transactions and whether the sale tallies with the sale shown in its profit and loss account. Auditor goes to the GST site (of GSTN, the company that processes GST returns) and checks the sales shown there and finds whether that tallies with the sale (shown in P&L account). Here GSTN is the third party.
For this, will the auditor have to get access to these accounts?
Yes. They (auditee) will have to provide the auditor access to these sites. Everybody says auditor cannot solely rely on client’s statements, they should verify things themselves. This is very important. The quality of audit will certainly improve and the reliability of financial statements will certainly improve. Our technical guide will tell auditors how to do digital assurance.
This will help to prevent Satyam-like scandals?
What are the steps being planned for improving sustainability reporting?
We have developed 16 social audit standards and to regulate the profession of social audit, we have formed the Indian Institute of Social Auditors, under section 8 of the Companies Act. As per Sebi, the regulation of entire profession of social audit will be done by ICAI. In a social stock exchange, non-government organizations will be able to raise funds. But the contributors would like to know about the utilization of those funds.
The social auditor checks if the money raised has been utilized properly. The Indian Institute of Social Auditors will regulate these auditors and take disciplinary action wherever warranted. National Institute of Securities Market (NISM), a public trust set up by Sebi, conducts the qualifying exam for social auditors. NISM is developing the curriculum in consultation with ICAI.
What is ICAI’s position on audit reforms proposed by the company law committee, that are under the government’s consideration?
One of the areas that they are talking about is joint audits in certain cases. ICAI has always said that joint audit is the way forward for public interest entities, not for small entities. I believe the government is taking a similar stand as far as joint audits are concerned. From what we understand, what they are saying is that for public interest entities, auditor cannot do any kind of non-audit services. For example, providing taxation services. Many of the chartered accountant firms do audit and also do tax advisory. The Institute said that there is no self review threat if the auditor provides tax advisory.... To that extent, the view points are different. But the proposed ban is only for public interest entities. ICAI’s position has been that it is a matter of principle. If there is a conflict of interest, it may be there for all because the services are the same. What I understand from the (news) papers, they are only talking about public interest entities.
What is the future agenda for policy makers and regulators who met at the world congress of accountants last month?
The UN’s sustainability agenda should be carried forward. Accounting and auditing profession must change in line with technological changes. Trust in the profession is extremely important. And profession must do everything possible to live up to this expectation. These were the conclusions that emerged out of the World Congress of Accountants. Sustainability is an evolving area. Sustainability standards have to be strengthened in India. May be we have to do that much more to ensure that non-financial reporting is further strengthened across the corporate sector. Today we are talking about only financial reporting, balance sheets. May be the time has also come, it is linked to sustainability—for ESG standards that ICAI is developing. Today we have the Business Responsibility and Sustainability Reporting (BRSR) course which many members take. Sebi has mandated BRSR reporting for top 1000 listed companies.