The Auditing Standard on Audit Engagement (CSAS-1), formulated by Auditing Standards Board (ASB) of the Institute of Company Secretaries of India (ICSI) and issued by the Council of the ICSI is mandatory for all the audit engagements accepted by the auditor on or after April 01, 2021.
CSAS-1 is applicable to all the Practicing Company Secretaries undertaking audit assignments under any statute such as Companies Act, 2013, Securities and Exchange Board of India Act, 1992 or any other law prevailing in India. However, it is not applicable for audits entrusted on a voluntary basis by the auditee to the auditor and hence the auditor can voluntarily adhere to this Standard while undertaking any audit engagement.
The Standard lays down the principles and procedures to be followed by an auditor in the following situations:
1. while accepting a new audit engagement;
2. for a recurring audit engagement; or
3. when there is a change in the terms of the audit engagement
In all the above cases, the auditor is required to obtain a fresh audit engagement letter, establishing all the terms and conditions for undertaking the respective audit.
CSAS-1 explains the process of entering into an understanding/agreement with the appointing authority for the purpose of audit and also defines the roles and responsibilities of the auditor and auditee with respect to an audit engagement.
Following steps are involved in an audit engagement:
1. Appointment of the Auditor
a. Pre-engagement Meeting: The first and the foremost step in an audit engagement process is a pre-engagement meeting between the auditor and the auditee/appointing authority (“person subject to audit”) to discuss inter-alia about the terms of the engagement, business operations of the auditee, their internal control systems, time period within which the audit is required to completed, prior year audit findings and conclusions, etc.
b. Conflict of Interest: The auditor shall also disclose any conflict of interest with the auditee in the pre-engagement meeting before accepting the audit engagement or as soon as the auditor becomes aware of the same, as the case may be. The auditor shall not accept any audit engagement wherein he/she has any substantial conflict of interest with the auditee. In the following cases, the auditor shall be deemed to have a substantial conflict of interest with that of the Auditee:
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- Auditor holds more than 2% of the paid up share capital or shares of nominal value of Rs. 50,000 either singly or jointly with partners, spouse, parent, sibling, and child of such person or of the spouse, any of whom is dependent financially on such person
- Auditor indebted to the Auditee for an amount exceeding Rs. 5,00,000 other than that arising out of ordinary course of business of the Auditee
- Indebtedness that may seriously impair the independence of the Auditor, irrespective of the amount
- Auditor was in employment of the Auditee company or its holding or subsidiary company during immediately preceding 2 years
In all the above-mentioned cases, the auditor is debarred from accepting such audit engagement.
c. Eligibility Certificate: The auditor shall, before accepting any audit engagement, submit an eligibility certificate to the auditee/appointing authority confirming his/her eligibility for appointment as an auditor. Auditor and auditee both should check that the audit engagement is within the limits, if any, as may be prescribed under any law for the time being in force or by the ICSI from time to time. The Guidance Note issued by the ICSI on the CSAS-1 prescribes the limit on the number of Secretarial Audit Reports and Annual Secretarial Compliance Reports to be issued by a PCS.
d. Communication to the previous auditor: Before accepting an audit engagement, the auditor shall also send a written communication to the previous auditor and shall wait for a period of 7 days from the date of communication for a response/no objection from the previous auditor. Further, it shall be the duty of the new auditor to maintain confidentiality of any information received from the previous auditor.
e. Appointment of the Auditor: The appointment of auditor shall be made in the manner prescribed in the applicable Laws, Act, Rules, Regulations, Standards and Guidelines and in case no such manner has been prescribed, such appointment shall be made in the manner determined by the appointing authority.
2. Audit Engagement Letter:
a) The auditor shall obtain an audit engagement letter along with a copy of the resolution, if any, passed by the appointing authority and shall provide acceptance to the appointing authority.
b) The audit engagement letter shall contain such particulars as are prescribed by the ICSI and such other terms and conditions as agreed upon mutually between the appointing authority and the auditor such as scope of audit, responsibilities of the auditor and auditee, time period within which the audit report is to be submitted by the auditor, terms regarding audit fees and reimbursement of out of pocket expenses in connection with the audit, limiting conditions, if any and such other terms and conditions. Clauses with respect to involvement of any third party or any experts for some specific area of audit should also be included in the audit engagement letter.
3. Confidentiality:
a) It is expected from the auditor to apply and maintain highest standards of confidentiality and not disclose to any person or company, (whether during the course of appointment or at any time after termination) any information, documents, evidences, representations etc. received during the course of audit.
b) Except for the purposes of audit, the auditor shall not share or disclose any information without proper and specific authority or unless there is a legal obligation or duty to disclose and if he/she does so, he shall be deemed to be guilty of professional misconduct.
c) Furthermore, the auditor shall take all reasonable steps to ensure that employees, staff and other team members of the auditor and persons engaged by the auditor to provide advice or assistance during the conduct of audit, shall also adhere to the auditor’s duty of confidentiality. A Non-Disclosure Agreement (NDA) can also be taken from such personnel who may have access to such confidential information.
4. Changes in terms of engagement:
a) With mutual consent, the terms of the audit engagement may be changed. If the terms of the audit engagement are changed, the auditor and the appointing authority shall enter into a supplementary/revised engagement letter to give effect to the new/changed terms and conditions.
b) However, the auditor shall not accept such change in the terms where there is no reasonable justification for doing so.
c) The impact of such change on the level of assurance shall also be ascertained before accepting the same. If such change is likely to result in a lower level of assurance, the auditor shall consider the appropriateness of carrying out the same.
Reference link for CSAS-1 and the Guidance note: https://www.icsi.edu/auditing-standard/
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