Change in the formats for limited review reports and audit reports of the listed entity and those entities whose accounts are to be consolidated with the listed entity
Securities and Exchange Board of India
CIR/CFD/CMD1/44/2019 March 29, 2019
All listed entities (whose equity shares and convertible securities are listed)
All the Recognized Stock Exchanges
Institute of Chartered Accountants of India (ICAI)
Madam I Sir,
Sub: Procedure and formats for limited review/audit report of the listed entity and those entities whose accounts are to be consolidated with the listed entity
1. The Kotak Committee Report on Corporate Governance , inter-alia, suggested certain changes in the regulatory framework for Group SEBI, while considering the recommendation of the Kotak Committee , decided to amend Regulation 33 of the SEBI (Listing Obligation and Disclosures Requirements) Regulations, 2015 (“SEBI LODR Regulations”), after considering public comments, with respect to this matter. Accordingly , the following new sub-regulation was inserted under Regulation 33 of the SEBI LODR Regulations ,which will come into effect from April 01, 2019.
“(8) The Statutory auditor of a listed entity shall undertake a limited review of the audit of all the entities/companies whose accounts are to be consolidated with the listed entity as per AS 21 in accordance with guidelines issued by the Board on this matter “.
- all listed entities whose equity shares and convertible securities are listed on a recognised stock exchange ,
- the statutory auditors of such entities ,
- all entities whose accounts are to be consolidated with the listed entity and
- the statutory auditors of entities whose accounts are to be consolidated with the listed entity
(Referred to as ‘parties to the limited review’ for easy reference) , shall, with respect to the aforesaid sub-regulation as applicable, comply with the following:
(a) Procedure: The parties to the limited review shall, as applicable , follow the procedure as given at Annex 1 to this Circular
(i) SEBI, vide Circular No. CIR/CFD/CMD/ 15/2015 dated November 30, 2015 , had prescribed formats for:
(a) Periodical Financial Results by listed entities; and
(b) Limited Review Reports and Audit Reports by statutory auditors of the listed entities
(ii) SEBI further vide circular CIR/CFD/ FAC/62/2016 dated July 05, 2016 had made certain changes to the formats for submitting to periodical financial results.
(iii) While the formats for periodical financial results to be submitted by listed entities will continue to remain the same as specified in the aforesaid abcaus.in circulars , the formats for limited review reports and audit reports specified vide SEBI Circular CIR/CFD/CMD/ 15/2015 dated November 302015 will be replaced vide this circular.
(iv) Accordingly , paras 3(d) and (e) of SEBI Circular CIR/CFD/CMD/ 15/2015 dated November 30, 2015 and the relevant Annexure V , VI, VII and VIII referred to therein stand deleted. In place of the formats specified in these four Annexures , the Limited Review reports and Audit Reports, as applicable , shall be given by statutory auditors in the formats specified in Annex 2 to this circular.
(v) A summary of the formats , as per applicability , is placed below for easy reference:
(v) Insurance companies shall follow formats as prescribed by
3. The provisions of this circular shall be in addition to and not affect the norms and procedures with respect to limited review specified under clause (c) of sub-regulation 3 of Regulation 33 and related provisions.
4. This Circular shall come into force with effect from April 01, 2019 e. the date on which sub-regulation 8 of Regulation 33 comes into force.
5. The Institute of Chartered Accountants of India (ICAI) may consider issuing necessary guidance to Chartered Accountants ensure compliance with this circular in letter and in spirit.
6. The Stock Exchanges are advised to bring the provisions of this circular to notice of the listed entities and disseminate it on their website.
7. The circular is issued in exercise of the powers conferred under sections 11 and 11A of the Securities and Exchange Board of India Act, 1992 read with regulations 33(8) and 101 of SEBI (Listing Obligations and Disclosure Requirements) Regulations , 2015.
8. The circular is available on SEBI website at www .sebi.gov.in under the category ‘Legal > Circulars’.
Compliance and Monitoring Division-1
Corporation Finance Department
Procedure under Regulation 33(8) of SEBI LODR Regulations with respect to listed entities/ companies
1. OBJECTIVE AND CLARIFICATIONS
a. The objective of this Procedure is to ensure that the statutory auditors undertaking the audit / review of the Consolidated Financial Statements / Results of the Parent Company obtain desired information as required under the Standard on Auditing (SA) 600, “Using the Work of Another Auditor” and the Guidance Note (GN) on Audit of Consolidated Financial Statements (Revised 2016) issued by the Institute of Chartered Accountants of India (ICAI) in order to rely on the work of the auditors of the Financial Statements / Results / Information of the Components , while forming and expressing an opinion / conclusion ,as applicable , on the Consolidated Financial Statements / Results of the Parent Company under Regulation 33(8) of SEBI LODR Regulations.
However, the audit and limited review of the respective Components that are being consolidated with the Parent Company shall continue to be undertaken by the respective auditors of such Components.
(b) The procedure is applicable for Listed Entities in the case of review of the Consolidated Financial Statements / Results of the Parent Company prepared in accordance with the requirements of:
(i) Indian Accounting Standards (lnd AS), [namely, lnd AS 110: Consolidated Financial Statements , lnd AS 28: Investments in Associates and Joint Ventures and lnd AS 111:Joint Arrangements] or
(ii) Accounting Standards (AS), [namely, AS 21: Consolidated Financial Statements, AS 23: Accounting for Investments in Associates in Consolidated Financial Statements and AS 27: Financial Reporting of Interests in Joint Ventures].
(c) The procedure does not alter the requirements of limited review or audit of the Standalone / Consolidated Financial Statements/Results of the Parent Company and/or the Standalone Financial Statements/ Results of the The requirement for review / audit of the financial Statements / results as mandated by regulations 33(1) and 33(3), continues to exist. Accordingly ,the Parent Company could opt to either get the Consolidated Statements / Results subjected to limited review or audit by their auditors.
2. AUDIT / REVIEW OF CONSOLIDATED FINANCIAL STATEMENTS / RESULTS
a. Compliance with Mandatory SAs / SREs / GNs issued by ICAI
The audit / review of Consolidated Financial Statement I Results should be conducted in accordance with the mandatory Standards on Auditing (SA) / Standards on Review Engagements (SRE), Guidance Notes (GN), as applicable , issued by the ICAI.
In this regard, the audit of Consolidated Financial Statements/ Results should be conducted in accordance with the Standard on Auditing (SA) 600, “Using the Work of Another Auditor” (hereinafter referred to as SA 600) and the Guidance Note (GN) on Audit of Consolidated Financial Statements (Revised 2016) (hereinafter referred to as GN CFS) issued by the Institute of Chartered Accountants of India (ICAI) and other guidance/guidelines of the ICAl. The review of Consolidated Financial Statements I Results should be conducted in accordance with the Standard on Review Engagements (SRE) issued for the purpose by the ICAl, also to be read in conjunction with SA 600 and GN on CFS.
b. Procedures under SA 600, SRE 240012410 and GN on CFS
The Principal Auditor i.e. the auditor of the parent listed entity should plan and perform an audit to obtain sufficient and appropriate audit evidence to express an opinion on the Consolidated Financial Statements I Results. In an audit of Consolidated Financial Statements I Results , the principal auditor (as defined in SA 600) is required to perform various procedures in accordance with SA 600 and GN on CFS issued by the ICAI.
The Principal Auditor should plan and perform the review to obtain moderate assurance as to whether the Consolidated Financial Statements / Results are free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures , applied to financial data and thus provides less assurance than an audit. In an engagement to review Consolidated Financial Statements / Results also , the Principal Auditor should comply with the requirements of SA 600, SRE 2400/2410 and GN on CFS, as may be applicable.
Pursuant to (a) and (b) above, the principal auditor (that is, the Parent Company’s Auditor ) shall, inter alia, consider the following procedures, as applicable , with respect to the audit / review of the Consolidated Financial Statements/ Results:
(Note: These procedures are not to be construed as being complete and comprehensive and are not a replacement or a substitute to the requirements detailed in the relevant Standards on Auditing/ Standards on Review Engagements/Guidance Notes and must, therefore, not be read on a standalone basis)
(i) Obtain an understanding of the consolidation process followed by the Parent Company Management , including the instructions issued by the Parent Company Management to components
(ii) Discuss with the other auditor or Component Management those of the Component ‘s business activities that are significant to the group and identify Components that are likely to be Significant (See Explanatory Note below) and Non-significant and develop an overall Consolidated Financial Statements/ Results audit I review plan.
( Explanatory Note: The principal auditor will determine Significant Components. Such determination should be made by the principal auditor based upon their understa nding of the risks assoc iated with the consolidated financial statements, materiality and exercise of professional judgment. However, as a minimum, Significant Components selected by the principal auditor would represent those Compo nents which together with the Parent Company would in the aggregate represent at least eighty percent of each of the consolidated revenue, assets and profits.)
(iii) Determine the materiality for the Consolidated Financial Statements I Results as a whole when establishing the overall Consolidated Financial Statements I Results audit I review plan as well as determine whether the component’s financial statements are material to the group to determine whether they should scope in additional components , and consider using the work of other auditors (that is, the Component Auditors ), as applicable.
(iv) When planning to use the work of another auditor, the principal auditor shall consider the professional competence of the other auditor in the context of the specific assignment, if the other auditor is not a member of the ICAl -SA 600 Para 11.
(v) Determine the nature, timing and extent of the procedures to be performed by the principal The principal auditor shall also perform procedures to obtain sufficient abcaus.in appropriate audit evidence , that the work of the other auditor is adequate for the principal auditor’s purposes, in the context of the specific assignment.
(vi) Design and perform audit I review procedures on the Consolidated Financial Statements I Results arising from the special considerations relating to the consolidation process
(vii) When considered necessary by the principal auditor, he may require the other auditor to answer a detailed questionnaire regarding matters on which the principal auditor requires information for discharging his The other auditor should respond to such questionnaire on a timely basis.
(viii) While the principal auditor should consider the significant findings of the other auditor , he may consider it appropriate to discuss with the other auditor and the management of the component,the audit findings or other matters affecting the financial information of the He may also decide that supplemental tests of the records or the financial statements of the component are necessary. Such tests may,depending upon the circumstances , be performed by the principal auditor or the other auditor.
(ix) When the principal auditor concludes that the financial information of a component is immaterial, the procedures outlined in SA 600 do not When several components , immaterial in themselves , are together material in relation to the financial information of the entity as a whole, the procedures outlined in SA 600 should be considered.
(x) Obtain Management Representations including those relating to the Consolidated Financial Statements / Results.
(xi) Evaluate and consider all Reporting Considerations including those communicated by the other auditors.
(xii) Include in the audit / review documentation, the matters specified in SA 600 Para
(d) Consolidated Financial Statements / Results Audit / Review Instructions
The Consolidated Financial Statements / Results Audit / Review Instructions mentioned below may set out the work to be performed , the use to be made of that work, and the form and content of the other auditor communication with the principal auditor.
The principal auditor shall communicate its requirements to the other auditor on a timely basis. This communication shall set out the work to be performed , the use to be made of that work, and the form and content of the other auditor communication with the principal auditor.
The Parent Company Management is responsible to ensure that there is co-ordination between the principal and other auditor to comply with the requirements of SA 600.
The key matters that may, inter alia, be included in the Consolidated Financial Statements / Results audit / review instructions include: