ICAI tightens auditing norms

The Institute of Chartered Accountants of India (ICAI), the body that regulates the profession of chartered accountancy in the country, today issued two revised accounting standards — SA 500 and SA 720 — to enhance the quality of audits and avoid a Satyam-like fraud.

The SA 500, which will become effective from April 1, 2009, lays down norms for obtaining and evaluating audit evidence, on which the final audit findings are based. Under this, a CA will have to go beyond verifying the balance sheet.

“Audit evidence is fundamental aspect of an audit on which the final audit opinion and the audit report is based. The quality and effectiveness of an audit is, therefore, to a large extent affected by the adequacy and appropriateness of the auditor’s procedures in gathering and evaluating the audit evidence,” said an ICAI statement.

The second standard — SA 720 — is a first of its kind standard to be issued by the Institute that has already introduced guidelines for auditors to vet annual reports and other documents.

“It (SA 720) requires the auditor to read such other information to identify any material inconsistencies vis-a-vis the audited financial statements since these can undermine the credibility of those financial statements and the audit report,” said the ICAI release.

This standard will become effective from April 1, 2010.