December 24, 2008
Important decision taken at 283rd Council Meeting of ICAI
The Institute of Chartered Accountants of India (ICAI) is a statutory body established under the Chartered Accountants Act, 1949 for the regulation of the profession of Chartered Accountancy in India. During its nearly six decades of existence, ICAI has achieved recognition as a premier accounting body not only in the country but also globally, for its contribution in the fields of education, professional development, maintenance of high accounting, auditing and ethical standards. ICAI now is the second largest accounting body in the world.
The affairs of the ICAI are managed by the Council in accordance with the provisions of the Chartered Accountants Act, 1949 and the Chartered Accountants Regulations, 1988. The Council of the Institute at its 283rd meeting held on December 18th -20th, 2008 has taken the following decision with respect to the approval of four Auditing Standards.
Revised Auditing Standards on Fair Value, Audit Sampling, Related Parties and Opening Balances
The Institute of Chartered Accountants of India is committed to the cause of making the Indian auditing profession globally competitive. As the first and foremost step in this direction, the Institute has been issuing Auditing Standards benchmarked with the internationally recognized auditing standards issued by the International Auditing and Assurance Standards Board (IAASB). The year 2008 witnessed issuance of a number of new/ revised auditing standards corresponding to the international standards issued by the IAASB under its Clarity Project.
The Council of the Institute in its recently concluded meeting has approved four more Standards on Auditing. These SAs relate to important aspects in the audit process such as fair value, audit sampling, analytical procedures and opening balances. These new Standards are more elaborate as they provide ample application guidance on various concepts discussed in the Standards.
· The Revised Standard on Auditing (SA) 540, “Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures” provides timely guidance on audit of fair value and accounting estimates in the current times of market uncertainty and liquidity crunch. Accounting estimate is an approximation of a monetary amount in the absence of precise means of measurement. Risk of material misstatement increases significantly since accounting estimate involves the use of judgment by the management. This Standard provides specific guidance to auditor while verifying the valuation of complex financial instruments which are not traded in active and open market and transactions involving the exchange parties without monetary consideration. This Standard is applicable for audits of financial statements for periods beginning on or after April 1, 2009.
· Revised SA 530 “Audit Sampling” is also applicable from April 1, 2009 and it guides auditors while using sampling techniques in their audit assignments, and covers both statistical and non-statistical sampling.
· SA 510, “Initial Engagements – Opening Balances” and SA 550 “Related Parties” are applicable from April 1, 2010. SA 510 deals with auditor’s responsibility with respect to opening balances when performing initial audit engagements. SA 550 is aimed to strengthen current auditing practice in this area by emphasizing the need for the auditor to understand related party relationships and transactions in order to identify the risks of material misstatement to which these may give rise, and directing the auditor to focus work effort on the assessed risks of material misstatement, including those due to fraud