CA Final

(For June 2020 Exam Onwards)

BY CA KHUSHBOO SANGHAVI

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 CA Final Advanced Auditing & Professional Ethics
Amendment for June 2020 Exams

I. SEBI (LODR) II Professional Ethics

I SEBI (LODR)
New Circular No CIR | CFD | CMDI | 114 | 2019 dated 18|10|2019

Applicable to LISTED COMPANIES & its MATERIAL SUBSIDIARY

In case of Resignation of statutory Auditor before completion of audit of Financial Results

A There are few disclosure & compliance responsibilities laid on Listed Company,
Audit committee & Auditor, so that investor can take informed decision and helps in
safeguarding interest of investors.

a) Responsibilities of Listed Companies (LC) :-

(i) Listed companies (LC) are required to make timely disclosures to investors in the securities
market
(ii) Listed Companies are required to disclosure detailed reason of resignation of auditor of a
listed company as soon as possible but not later than 24 hours of receipt of such reason
from auditor to stock exchanges

Reasons of

Resignation within
Max 24 hours
Listed Company Stock Exchange

(iii) Regulation 36(5) lays down certain disclosure to be made part of the notice for calling
an AGM, where statutory auditors are proposed to be appointed/ reappointed,
including their term.

b) Responsibilities of Audit Committee (AC) :-

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 (i) AC of a listed companies has to make recommendations for -
1. Appointment 2. Remuneration
3. Term of appointment of auditor
(ii) AC should review & monitor the independence is performance of auditors & effectiveness
of audit process

c) Responsibilities of Auditor:-
As resignation of auditor before completion of audit of the financial results for the year
May seriously hampers investors confidence & deny them access to reliable information for
taking timely investment decision; hence statutory auditor are required to issue limited
review/ audit report (as per SEBILODR) as under :-

When has auditor resigned? Which Report is required to be issued

before resignation?
i) Auditor has resigned WITHIN 45 i) Auditor Shall issue Limited review/
days from the end of a quarter of a Audit report for such quarter
Financial Year
ii) Auditor has resigned AFTER 45 days ii) Auditor shall issue Limited review/
from then end of a quarter of a Audit report for such quarter as well
Financial Year as next quarter
rd
iii) Auditor resigns after 3 quarter of a iii) Auditor shall issue the Limited review/
Financial year Audit report for the last quarter as well
as audit report for such financial year
(Note: LR is already issued for earlier 3
quarters)

Case (i) 45th day Case (ii) Case (iii)

Q1 Q2 Q3 Q4
*
15|7|2019 31|3|2020
1|4|2019 30|6|2019 30|9|2019 3|12|2019

B. Other Conditions relating to Resignation

(a) Report by statutory auditor to Audit Committee

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 (i) In case of non-availability of information, non-co-operation form management which
Hampers audit process; Auditor shall approach the chairman of Audit Committee (AC)
& A.C shall receive such concern without waiting for quarterly A.C meetings

Communicate Hold Meeting

Auditor CA KS (Non- Chairman of AC Audit Committee Not to wait for

availability of info. & non co- quarterly meeting immediately

operation from Management) receive such concern

(ii) In case auditor proposes to resign; all concerns along with relevant documents shall be
brought to notice of A.C. Audit must also inform reason of such resignation & if resignation
is due to non-availability of information then auditor must inform

A.C. regarding details of information & explanation soughted is not provided

Details of information

Soughted & not provided by

Mgt.

Auditor CA KS (Proposes to resign) Audit Committee

(iii) On receipt of above mentioned information, A.C./BOD shall deliberate on the matter &
Communicate its view to Management & auditor

Communicate

and
Its view

Auditor CA KS Management
A.C. / BOD

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(b) In case of non-availability of information auditor shall express modified audit opinion
(Disclaimer of opinion)

C. Obligation of the listed entity & it’s material subsidiary

(i) Format of information to be obtained from the statutory auditor is required to be disclosed
in Part A of Sch III under Regulation 30(2) of SEBI, LODR Regulation

Information Disclose

Auditor CA KS Listed Entity/ Part A of Sch-III under

Material Subsidiary Regulation 30(2) of SEBI,
LODR

(ii) If auditor proposes to resigns, Listed Company & its Material subsidiaries shall continue to
Provide all information & explanation/documents to auditor for issuing Limited Review
(LR) / Audit Report (AR) as stated above

All Information

& explanation

Listed Entity LR / AR
Auditor CA KS

(iii) Listed Entity shall ensure the disclosure of Audit Committee’s view to stock exchange as
Soon as possible but not later than 24 hours from the date of receipt such AC meeting

It’s View Disclosure

Within 24 hours

Audit Committee Listed Entity/ its Material Stock Exchange

Subsidiary

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 Note :- Only sharing cost relating to development of audit methodologies, manuals
or training courses → would not itself create a network

4) Larger structure can share common ownership, control or management → by contracts

or any other means

5) Larger structure formulates common Q.C policies & procedures & are DIM across the
Structure ( DIM = Designed, Implemented & Monitored)

6) Larger Structure share Common Business Strategy

7) Larger structure possesses common brand, including initial or a common name & it can
be added on audit report when partner of the firm signs it

8) Even though a firm does not belong to a network and does not use a common brand
name as part of its firm name, it may give the appearance that it belongs to a network
if it makes reference in its stationery or promotional materials to being a member of
An association of firms. Accordingly, if care is not taken in how a firm describes such
Memberships, a perception may be created that the firm belongs to a network

9) Larger entities shares significant professional recourses including

• Common systems that enable firms to exchange information such as client data,
billing and time records;
• Partners and staff;
• Technical departments that consult on technical or industry specific issues,
transactions or events for assurance engagements;
• Audit methodology or audit manuals; and
• Training courses and facilities.

* Larger structure means a structure aimed at co-operation and include entities in the
structure

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C Forms of Network (IMP)
➔ Network can be constituted as a

Manual Entity Partnership firm LLP subject to Company subject to

which can act with max 20 provision of CA guidelines prescribed by
as a facilitator partners Act & Rules ICAI

➔ Network firm shall consist of sole proprietor, partnership or any such entity of
professional accounts as may be prescribes by ICAI
➔ A firm is allowed to join only 1 network
➔ Firms having common partners, shall join only 1 network

D Approval of Name of Network amongst firms registered.

1. Networks may have distinct name which should be approved by ICAI. It shall not use
words such as “& co” / “& Associates”. It should possers word “Affiliates”

2. ICAI can withdraw the name any time if the name is subsequently found to be
Undesirable

3. ICAI shall approve or reject the name of network within 30 days from the date of receipt
of form (Form A)

4. Approval of name of network shall not entitle network to carry on practice in its own
Name.

E Registration of Network

1. Name so approved shall be kept reserved by ICAI for 3 months from date of approval

2. Therefore Network should get itself registered within 3 months, failing which the name
shall stand cancelled

3. Registration is Mandatory

4. If different Indian firms are networked with a common Multinational Accounting Firm,

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 they shall be considered as a part of network

F Listing of Entities outside India

1. Duty authorised representatives of Indian member firm(s) / Members consulting the

Network outside India shall file a declaration with ICAI within 30 days from such
arrangement

2. PCA ( In form of proprietary, partnership firm, LLP or other entity) shall be permitted to
Join network outside India only if they are allowed by ICAI & firms, having common
partner shall join only one such network

G Change in Constitution

1. Any change in constitution of network shall be communicated to ICAI within 30 days

from the date of change

H Ethical Compliance (MOST IMPORTANT)

1. Network firms cannot directly or indirectly render services stated u/s 144 of Companies
Act, 2013

2. Ceiling on Non-audit fees applicable to network is as follows :

For the same or associate is doing statutory auditor For other firms in the network

Same as mentioned in Notification 3 times amount of audit fees

3. Concept of rotation of auditor u/s 139 of Companies Act, 2013 shall apply to network

4. Network may advertise the network to the extent permitted by ICAI

5. Network shall comply with all Ethical Standards prescribes by council

I Consent of Client

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