Since there are substantial differences between the "Accounting Standards" used hitherto for the preparation of financial statements and the "Ind AS", the first time implementation of Ind. AS has thrown up many challenges for the companies as well as their statutory auditors. First-time implementation of Ind AS poses many challenges in defining auditor's responsibilities towards the audit of comparative information including opening balance sheet and reconciliations as at the transition date and its implication on the auditor's reporting. Accordingly, there is a need to define auditor's responsibilities with respect to audit of such financial information.
The IG has chosen to provide three Illustrative Formats in three specific Annexures as follows:
• Ind. AS financial statements prepared for the first year in which Ind. ASs are applicable to the company (Annexure I) the Companies Act, 2013 and the Rules there under
• Special purpose financial statements for the corresponding period and opening balance sheet as per Ind. AS which will be presented by the company as part of its first Ind. AS financial statements (Annexure 2) on the Comparative Ind. As Financial Information which will be Presented by a Company as Part of its First Ind. As Standalone Financial Statements
• Ind AS financial results prepared by a listed entity under SEBI Listing Regulations during the first year of adoption of Ind.AS (Annexure 3) on quarterly financial results (companies other than banks and insurance companies) (Phase 1) - Unmodified Opinion (only for quarterly results in the first year of Ind. AS implementation).
It may be noticed that Annexure I is suo-motto applicable for Independent Auditor's Report on the First Standalone Ind. AS Financial Statements of a Company under the Companies Act, 2013 and the Rules there under but would be applicable only for periods ending on or before 31st March, 2017, The Annexure 2 are used in specific circumstance that are dealt with in appropriate place a little later.
Audit reports the First Standalone Ind. AS Financial Statements are prepared in line with -
The requirements of Section 143 of the Companies Act 2013 and follow compliance framework for reporting purposes as discussed below:
• SA 700, 'Forming an Opinion and Reporting on Financial Statements', the financial reporting framework may be a fair presentation framework or a compliance framework.
• SA 705 for 'Modifications to the Opinion in the Independent Auditor's Report' and
• SA 706 for 'Emphasis of Matter Paragraphs and Other Matter Paragraphs
• SA 800 on "Special Considerations-Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks" under the compliance framework, where applicable
However, for audit reports for financial years commencing on or after 1st April 2017, SA 701 'Communicating Key Audit Matters in the Independent Auditor's Report' applies- there is a sea change-Opinion Para will be at the beginning apart from 'Communicating Key Audit Matters'- a new load. So, the formats for audit reports for financial years commencing on or after April 01, 2017 would have to be duly modified.
The Illustrative Format of Independent Auditor's Report:
As explained earlier, Illustrative Format (in Annexure I) of Independent Auditor's Report on the First Standalone Ind. AS Financial Statements of a Company under the Companies Act, 2013 and the Rules thereunder would be applicable only for periods ending on or before 31st March, 2017 since for subsequent periods the format would have to be revised based on new SA 701 and in line with revised SAs 700, 705, 706 as has been spelt out earlier.
A glance of the above said Annexure 1 will highlight that the format for Ind.AS Audit Report is by and large the same since reported under the same SA 700, 705, 706 as the case may be except for the following additions/clarifications at appropriate places:
• Specific additional financial statements that are (highlighted) the Balance Sheet as at 31st March, 2017, and the Statement of Profit and Loss (including Other Comprehensive Income), the Cash Flow Statement and the Statement of Changes in Equity for the year then ended and wherever repeated in subsequent paragraphs.
• Wherever Accounting standards are used for/in earlier dispensation, Ind.AS financial statements are used/to be necessarily used (under various paragraphs).
• Under Management Responsibility Para - the phrase__ 'the state of affairs (financial position)' has been inserted.
• 'Other matters' where applicable:
1) Where the transition adjustments and the opening balance sheet as per Ind.AS have been audited by the predecessor auditor or
2) Where the transition adjustments have been audited by the current auditor
For necessary details and input, Annexure I of the Illustrative report may be visited upon that's not reproduced here for brevity. It may be noted where the Company does not have any requirement to prepare consolidated financial statements under the Companies Act 2013, the word "Standalone" need not be used in the report for reason obvious.
The role of special purpose audit report under SA800 and the circumstance were arranged:
Illustrative Format Annexure 2, of Independent Auditor's Report on the Comparative Ind. AS Financial Information which will be presented by a Company as Part of its First Ind. AS Standalone Financial Statements and the Annexure 2 lists out Circumstances whence used will include the following:
• Audit of special purpose standalone financial statements of a company prepared under Ind. AS solely for purposes of including the amounts and disclosures as comparative information in the first Ind. AS financial statements reported by the Company.
• The terms of audit engagement reflect the description of management's responsibility for the special purpose financial statements in SA 210, agreeing on the Terms of Audit Engagements.
• The audit report is issued in terms of SA 800 "Special Considerations-Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks" under the compliance framework.
The independent auditor:
- Has given an Unmodified Opinion in respect of the special purpose standalone Ind. AS financial statements; and
- Has given Emphasis of Matter paragraphs only for:
o highlighting and explaining that these standalone Ind. AS financial statements do not include all comparative financial information for the prior period.
o highlighting that these standalone Ind. AS comparative financial statements have been prepared to provide the comparative financial information expected to be included
o company's first complete set of standalone Ind. AS financial statements.
• The auditor includes a "restriction on use" paragraph that the standalone Ind. AS financial statements are prepared in accordance with a special purpose framework and, therefore, may not be suitable for another purpose.
• The auditor has no other additional reporting responsibilities under the Companies Act, 2013 in respect of these special purpose financial statements.
If we visit the Annexure, it may be noticed, among other things, it has specially designed Para on
"Basis of Accounting' that reads as follows:
"Without modifying our opinion, we draw attention to Note X to these Comparative Standalone Ind. AS Financial Statements, which describes the basis of accounting. The financial statements are prepared to assist ABC Company Limited to meet the requirements of preparation for first set of complete standalone Ind. AS financial statements. As a result, the financial statements may not be suitable for another purpose'.
In Para on "Emphasis of Matter", it is unequivocal as to following:
"We (the auditors) draw attention to Note X to the Comparative Standalone Ind. AS Financial Statements, which describes the basis of accounting and further states that the comparative financial information has not been included in these financial statements. Only a complete set of financial statements together with comparative financial information can provide fair presentation of the company's state of affairs (financial position), profit/loss (financial performance including other comprehensive income), cash flows and the changes in equity. Our opinion is not modified in respect of this matter".
In Para on "Other Matter":
'The financial information for the year ended 31st March 2016 and the transition date opening balance sheet as at 1st April 2015 included in these special purpose standalone Ind. AS financial statements, are based on the previously issued statutory financial statements prepared in accordance with the Companies (Accounting Standards) Rules, 2006 audited by the predecessor auditor whose report dated 1st August 2016 and 1st July 2015 respectively expressed an unmodified opinion on those standalone financial statements, as adjusted for the differences in the accounting principles adopted by the Company on transition to the Ind. AS, which have been audited by us.
ABC Company Ltd. has prepared a separate set of financial statements for the year ended March 31, 2016 and March 31, 2015 in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 on which we issued a separate auditor's report to the shareholders of ABC Company Ltd. dated 1st August, 2016 and 1st July, 2015 respectively. Our opinion is not modified in respect of this matter'.
The above makes crystal clear, among other things, its regulated use, besides no other additional reporting responsibilities under the Companies Act, 2013. It may also be noticed that the report is addressed only to Board of Directors.
Audit/Review Report on Quarterly Financial Results (Annexure 3):
Illustrative Format of Audit Report on Quarterly Financial Results and ofIllustrative Format of Limited Review Report on Quarterly Financial Results for Companies (other than banks and insurance companies) (Phase 1) - Unmodified Opinion (only for quarterly results in the first year of Ind. AS implementation) Circumstances include the following:
• Only mandatory information as per the SEBI circular CIR/CFD/FAC/62/2016 dated 5th July 2016 is presented in the financial results.
• The results for the corresponding periods in the previous year have not been reviewed as per the relaxation available in the above referred circular.
Annexure 3 may be visited upon for details and clarity.
Reporting Framework as to Comparative Information-Corresponding Figures and Comparative Financial Statements'- references:
1. SA 710 'Comparative Information-Corresponding and Comparative Financial Statements'-
The Standard deals with the auditor's responsibilities regarding comparative information in an audit of financial statements. As per this SA, there are two different broad approaches to the auditor's reporting responsibilities in respect of such comparative information: (1) corresponding figures and (2) comparative financial statements. Under corresponding figures approach, the auditor's opinion does not refer to the corresponding figures (except in the limited specified circumstances); it refers to the current period only.
The amounts and other disclosures for the prior period are included as an integral part of the current period financial statements, and are intended to be read only in relation to the amounts and other disclosures relating to the current period figures. In contrast, when 'comparative financial statements' are presented, the auditor's opinion refers to each period for which financial statements are presented and on which an audit opinion is expressed.
2. The 'General Instructions for the preparation of Financial Statements of a Company Required to Comply with Ind. AS' in Schedule III to the Companies Act, 2013(Paragraph 6 ):
The financial statements shall contain the corresponding amounts for the immediately preceding reporting period for all items shown in the financial statements including notes except in the case of first financial statements laid before the company after incorporation.
3. SEBI Listing Regulations:
Require use of corresponding figures framework for disclosure of comparatives as part of the quarterly results for a particular quarter.
Considering the above discussion, the audit report on the financial statements/financial results prepared in conformity with Ind. AS would also be based on the corresponding figures approach. As per the Standards on Auditing, the current auditor can place reliance on comparative information audited by the predecessor auditor (subject to the requirements of SA 510, 'Initial Audit Engagements-Opening Balances' and SA 710).
It may be noted that Annexure I is addressed to the 'Members of the Company' since it is the main 'Audit Report' under Sec. 143 of the Companies Act, 2013. It may also be noticed that Annexure 2 is addressed to the Board of Directors of the Company since not issued under any legal obligation/compulsion but under special purpose consideration...Audit report under SA800 and under the circumstances as warranted. Annexure 3 is mostly for quarterly results and in the case of listed companies under Regulation 33 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, toe the Ind.AS Requirements as outlined for stand alone. As stated earlier, the audit report on the financial statements/financial results prepared in conformity with Ind. AS would also be based on the corresponding figures approach as has been dealt with copiously a little earlier. As per the Standards on Auditing, the current auditor can place reliance on comparative information audited by the predecessor auditor (subject to the requirements of SA 510, 'Initial Audit Engagements-Opening Balances' and as per SA 710). It may be noted that IG has not suggested any separate format for consolidated Audit Report may be because; it has to be tailored in consonance with Standalone Audit Reports in the present format of Consolidation Audit Report. It may also be observed that IG is based on the unmodified report, but if there is a requirement of modification, perhaps that may also have to be taken note both in Standalone & Consolidation.