The Institute of Chartered Accountants of India (ICAI) has recently issued an announcement outlining essential reporting requirements related to fees disclosure under the revised provisions in the Code of Ethics. These new regulations, specifically focused on “Fees – Relative Size,” have been in effect since October 1, 2022, with some notable amendments. This article delves into the details of these reporting requirements and their implications for Chartered Accountant (CA) firms.
Detailed Analysis:
ICAI, the regulatory body for CAs in India, has introduced revisions to the Code of Ethics, with a particular emphasis on fees related to audit clients. These changes aim to enhance transparency and accountability in the profession.
Key Provisions: Under the revised provisions of “Fees-Relative Size,” CA firms are obligated to report to ICAI when the gross annual professional fees received from an audit client exceed the prescribed threshold percentage for two consecutive years. This disclosure helps monitor and address potential conflicts of interest and threats to independence.
Reporting Process: CA firms must adhere to specific reporting procedures outlined in the revised Code of Ethics. The reporting must be made using a prescribed form, which should be duly filled and signed. This form is then submitted to the Ethical Standards Board through email (esb@icai.in).
Information Required: The form for disclosure includes several crucial details, such as:
- Name and Address of the Audit Client
- Determination of whether the client is a Public Interest Entity
- Financial year for which reappointment has been made
- Date of reappointment letter for the current year
- Percentage of dependence on the audit client for the year preceding the financial year
- Number of consecutive years exceeding the prescribed threshold percentage
- Safeguards adopted by the firm to address self-interest or intimidation threats
Declaration of Safeguards and Independence: Firms are required to declare their understanding of the provisions related to fees-relative size and the associated threats. They must acknowledge the importance of maintaining independence in audit engagements. Safeguards may include increasing the client base and involving appropriate reviewers to ensure audit quality.
Exemptions: It’s important to note that the provisions related to fees dependency disclosure do not apply when auditing government companies, public undertakings, nationalized banks, public financial institutions, or when auditors’ appointments are made by the Government or Regulators.
Exceptions for Smaller Firms: If a CA firm’s total fees do not exceed twenty lakh rupees, they are exempt from the provisions of fees-relative size.
Conclusion: In conclusion, ICAI’s recent announcement regarding reporting requirements for fees disclosure in the revised Code of Ethics is a significant step towards ensuring transparency and maintaining the integrity of the auditing profession. CA firms need to carefully adhere to these requirements to uphold the highest ethical standards and independence in their audit engagements. Understanding and complying with these regulations is vital for the continued trust and credibility of Chartered Accountants in India.
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Ethical Standards Board
The Institute of Chartered Accountants of India
6th October, 2023
ANNOUNCEMENT
Sub.: Reporting requirements pertaining to Fees related disclosure to Institute under the revised requirements in Code of Ethics
As the members are aware, the provisions pertaining to “Fees – Relative Size” contained in Volume-I of Code of Ethics [Paragraphs 410.3 to R410.6] have inter alia been made applicable from 1.10.2022 with certain amendments. The Announcement dt. 29.9.2022 to this effect may be accessed at https://resource.cdn.icai.org/71662esb57665.pdf and the revised provisions, including pertaining to the “Fees – Relative Size” may be accessed at https://resource.cdn.icai.org/71660esb57664.pdf.
Under the revised provisions of “Fees-Relative size”, disclosure is required to be made to the Institute in case where the gross annual professional fees from an Audit client exceeds the prescribed threshold percentage for two consecutive years.
In accordance with the provisions of revised paragraphs R410.3a and R410.4 of Volume-I of Code of Ethics, where the Fees related disclosure is to be made to the Institute, the CA firm shall make the disclosure in the prescribed form duly filled and signed. The form will be sent to Ethical Standards Board via email by CA Firm. The Form prescribed for making the above disclosure is appearing below.
Ethical Standards Board
FORMAT OF REPORTING TO THE INSTITUTE
*Form for Disclosure to the Institute by CA Firms.
(As per paragraph R410.3a and R410.4 of Volume-I of Code of Ethics to be duly filled signed form to be sent at esb@icai.in)
Declarant Firm Name & FRN :
| S. No. | Particulars | Remark/Statement |
| 1. | Name & Address of the Audit Client | |
| 2. | Whether the Client mentioned above is Public Interest Entity? | Yes / No |
| 3. | Financial year for which the reappointment has been made | |
| 4. | Date of reappointment letter for the current year | |
| 5. | Percentage of dependence for the year preceding the financial year for which audit reappointment has been made.
(Gross annual professional fees from the client & related entities/ Total fees of firm for financial year) |
|
| 6. | Number of consecutive years for which the dependence percentage exceeds the prescribed threshold percentage |
|
| 7. | The percentage of dependence on audit client determined from total fees of audit client (mentioned at s.no 1) for audit of each year’s financial statement. | Year Percentage |
| 8. | Specific safeguards if any adopted by the firm
(i) Peer Reviewer (ii) AQMM (iii) Any other |
Declaration of Safeguards and Independence
I/we are fully aware of the provisions of fee-relative size from paragraph 410.3 A1 to R410.6 contained in Volume-I of Code of Ethics and understand that when the total fees generated from an audit client by the firm expressing the audit opinion represent a large proportion of the total fees of that firm, the dependence on that client and concern about losing the client create a self-interest or intimidation threat.
I/we understand that the safeguards to address such a self-interest or intimidation threat are
(i) Increasing the client base in the firm to reduce dependence on the audit client.
(ii) Having an appropriate reviewer who did not take part in the audit engagement review the work to ensure quality of the work.
I/we have taken due professional care to maintain independence in the Audit engagement of the Client M/s. ——————————————- (mentioned in sr, no. 1 in table above) and will continue to do so.
Signature
(Name of the Signing Partner)
(Designation)
(Name of the firm)
Place:
Date:
Notes:
- *If the firm’s total fees do not exceed twenty lakh rupees, the provisions of fees-relative size will not be applicable.
- It may be noted that in the case of audit of government Companies, public undertakings, nationalised banks, public financial institutions or where appointments of auditors are made by the Government or Regulators, the disclosure requirement to the Institute of fees dependency would not be applicable.
