The weekly messenger | Edition 17.20

Auditing News

Clarification on Fees from a Single Client – 11 May 2020

Pursuant to the introduction of ICAI’s revised Code of Ethics, which is effective from 1 July 2020, some members have expressed their concern with respect to one of the provision as provided in the aforesaid Code of Ethics, which relates to measures for addressing self-interest threats resulting from dependence of fees from a single client.
 
In this respect, the ICAI has clarified that there is not a bar in the revised Code of Ethics on acceptance of more than 15% fees from a single client. However, there is only requirement of disclosure, and taking safeguards prescribed therein, if the total gross annual professional fees from the audit client and its related entities represent more than 15% of the total fees received by the firm expressing the opinion on the financial statements of the client for two consecutive years.
Further, it has also been clarified that the said Rules would not apply in case of audit of Government Companies, public undertakings, nationalised banks, public financial institutions or where appointments are made by Government or where the total gross annual fees of the Firm does not exceed five lakhs of rupees.
       
Moreover, this Rule would be applicable only in those scenarios, where the fees is received from an audit client.
 
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ICAI issues publication on Physical Inventory Verification – Key Audit Considerations amid COVID-19 – 13 May 2020

The ICAI has issued a publication on ‘Physical Inventory Verification – Key Audit Considerations amid COVID-19’, which inter-alia includes:

• Auditor’s Considerations in various scenarios such as:

1. Management unable to conduct physical inventory counting as on the date of financial statements.
2. Physical inventory counting conducted by management at a date other than the date of financial statements.
3. Alternative audit procedures where it is impracticable for auditors to attend physical inventory counting such as: Using the work of internal auditor; Engaging other Chartered Accountant(s) to attend physical verification; & Use of technology in inventory counting.
4. Inventory held by a third party.
5. Inventory in transit / cut-off procedures.

• Implications for the Auditor’s Report.

For more information, click here.

ICAI issues publication on Auditor’s Reporting – Key Audit Considerations amid COVID-19 – 17 May 2020

The ICAI has also issued a publication on ‘Auditor’s Reporting – Key Audit Considerations amid COVID-19’, which discusses the possible impact of COVID-19 on the auditor’s report. The Publication comprises of the following topics:

• Impact on Auditor’s Report which includes:

1. Modification of the Auditor’s Opinion due to: Improper accounting/inadequate disclosures; & Inability to obtain sufficient appropriate audit evidence.
2. Going Concern Considerations.
3. Including an Emphasis of Matter Paragraph in the Auditor’s Report.
4. COVID-19 and Key Audit Matters.
5. KAM related to Going Concern.
6. Auditor’s Responsibilities in respect of Discussion about the COVID-19 Pandemic included in Other Information in the Entity’s Annual Report.

• Impact on Reporting under CARO 2016 comprising of:

1. Clause 3(ii): Physical verification of inventory;
2. Clause 3(vii)(a): Reporting on deposit of undisputed statutory dues;
3. Clause 3(viii): Default in repayment of loans or borrowings to a financial institution, bank, Government or dues to debenture holders.

• Impact on Reporting on Internal Financial Controls with reference to Financial Statements.

For more information, click here.

Clarification on dispatch of notice under Section 62(2) of Companies Act, 2013 by listed companies for rights issue opening up to 31 July 2020 – 11 May 2020

The Ministry of Corporate Affairs (MCA) was receiving various representations, thereby seeking clarifications with respect to the mode of issue of notice referred to in Section 62(1)(a)(i) read together with Section 62(2) of the Companies Act, 2013 for issue of right shares by the listed companies, as the companies are facing difficulties in sending the notices through postal or courier services due to COVID-19.
 
Now, after considering the Securities and Exchange Board of India’s (SEBI) Circular dated 6 May 2020, which provided certain onetime relaxations from certain regulations of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, pertaining to Right Issue opening up to 31 July 2020, the MCA has clarified that any inability on part of the listed companies to dispatch the notice as mentioned above through registered post or speed post or courier would not be treated as violation under Section 62(2) of the Companies Act, 2013.
 
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Additional relaxations in relation to compliance with certain provisions of Listing Regulations – COVID-19 pandemic – 12 May 2020

The SEBI has decided to grant certain more relaxations/issue clarifications with respect to the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (Listing Provisions), which are as follows:

• Relaxation necessitating out of MCA Circulars: Pursuant to the relaxation being provided by the MCA with respect to the holding of Annual General Meeting through Video Conferencing or Other Audio Visual Means during the Calendar Year 2020, wherein the requirement of printing and despatching of annual reports to the shareholders has also been dispensed with, the SEBI has relaxed the following Regulations of the Listing Regulations:  

1. Requirement of sending physical copies of annual reports and statement containing salient features of all the documents, as prescribed in Section 136 of the Companies Act, 2013 to the shareholders has been dispensed with.
2. The requirement of sending of proxy forms to the holder of the securities has also been dispensed with for a temporary period, in case the meetings are held through electronic mode.
3. Requirement of dividend warrants/cheques will apply upon normalisation of postal services.

• Relaxation from publication of advertisements in the newspapers: SEBI vide its erstwhile Circulars dated 26 March 2020 and 17 April 2020, had exempted the publication of advertisements in the newspapers, as required under Regulation 47 and 52(8) of the Listing Regulations for all schedules events up to 15 May 2020. Now, in view of the continuing lockdown, the said exemption has been further extended till 30 June 2020.
• Relaxation from publishing quarterly consolidated financial results for certain categories of listed entities: 

1. Listed entities which are banking and / or insurance companies or having subsidiaries which are banking and / or insurance companies may submit consolidated financial results under regulation 33(3)(b) for the quarter ending 30 June 2020 on a voluntary basis. However, they shall continue to submit the standalone financial results as required under regulation 33(3)(a) of the Listing Regulations. 
2. If such listed entities choose to publish only standalone financial results and not consolidated financial results, they shall give reasons for the same.

For more information, click here.

Relaxations relating to procedural matters – Takeovers and Buy-back – 14 May 2020

Due to COVID-19, the SEBI has also granted certain relaxations from strict enforcement of certain regulations of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and SEBI (Buy-back of securities) Regulations, 2018 pertaining to open offers and buy-back tender offers opening up to 31 July 2020.

For more information, click here.

Relaxation from the applicability of SEBI Circular dated 10 October 2017 on non -compliance with the Minimum Public Shareholding (MPS) requirements – 14 May 2020

In the month of October 2017, the SEBI had issued a Circular, which lays down the procedure to be followed by the recognised stock exchanges/depositories with respect to MPS non-compliant listed entities, their promoters and directors, including levy of fines, freeze of promoter holding etc.
 
Now, after receiving various representations from various listed entities and industry bodies due to the current situation, the SEBI has decided to grant relaxation from the applicability of the aforesaid Circular. Accordingly, the stipulations of the aforesaid Circular are relaxed for listed entities for whom the deadline to comply with MPS requirements falls between the period from 1 March 2020 to 31 August 2020.
 
For more information, click here.