ICAI’s Clarification and Guidance Note on Audit of Consolidated Financial Statements (Revised 2016)

Clarification and Guidance Note by ICAI on Audit of Consolidated Financial Statements

ICAI’s Guidance Note on Audit of Consolidated Financial Statements (Revised 2016 Edition) relating to procedures for preparation and presentation of consolidated financial statements under AS/ Ind AS, has been released. Further, ICAI has clarified about Para 17 and has revised text thereof.

A. ICAI’s Clarification on Para 17 of Guidance Note on Audit of Consolidated Financial Statements

ICAI has clarified on 3rd bullet point of para 17 of the Guidance note on Consolidate Financial Statements, based on Members’ review requests, and has accordingly revised the text as under:

Existing Text

“However, while considering the observations (for instance modification and /or emphasis of matter in accordance with SA 705/706) of the component auditor in his report on the standalone financial statements, the concept of materiality would not be considered. Thus, the component auditor’s observations, if any, on the component’s financial statements, irrespective of whether the auditors of the component are also the auditors of the CFS or not, are required to be included in the parent auditor’s report on the CFS, regardless of materiality. (Refer paragraph 46 of this Guidance Note)”

Revised Text

While considering the observations (for instance modification and /or emphasis of matter/other matter in accordance with SA 705/706) of the component auditor in his report on the standalone financial statements, the parent auditor should comply with the requirements of SA 600, “Using the Work of Another Auditor”.

Above amendment has been made to clarify that the intent of the Guidance Note on Consolidate Financial Statements was also to ensure compliance of SA 600 in such matter.

ICAI’s Announcement dt. 25 May 2017

B. ICAI’s Guidance Note on Audit of Consolidated Financial Statements (Revised 2016)

This Guidance Note was originally issued in 2003 to provide guidance to the members undertaking audits of consolidated financial statements. Since the issuance of this Guidance Note, a number of developments have taken place like notification of the Companies (Accounting Standards) Rules, 2006, replacement of the Companies Act, 1956 by the Companies Act, 2013, issuance of the Indian Accounting Standards (Ind AS) by ICAI, notification of the Companies (Indian Accounting Standards) Rules, 2015. These developments necessitated the revision of the Guidance Note.

Further, the ICAI had issued Accounting Standard (AS) 21 on ‘Consolidated Financial Statements’ which was subsequently notified as a part of the Companies (Accounting Standards) Rules, 2006 by Ministry of Corporate Affairs and subsequently amended vide the Companies (Accounting Standards) Amendment Rules, 2016. Also Ind AS 110, ‘Consolidated Financial Statements’ has been issued as a part of the Companies (Indian Accounting Standards) Rules, 2015 by Ministry of Corporate Affairs. Accounting Standard 21 and Ind AS 110 lay down principles and procedures for preparation and presentation of consolidated financial statements under AS and Ind AS respectively.

Revised edition 2016 of the ‘Guidance Note on Audit of Consolidated Financial Statements’ incorporates the impact of the above referred developments in appropriate manner. The Guidance Note covers aspects such as introduction, definitions, responsibility of the parent, responsibility of the auditor of consolidated financial statements, audit considerations, auditing the consolidation, special considerations, management representations, reporting, etc. For the benefit of the members, the Appendices to the Guidance Note include the illustrative formats of auditor’s report on consolidated financial statements.

ICAI’s Guidance Note on Audit of Consolidated Financial Statements (Revised 2016)

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