The Hindu Business Line : Let's agree to disagree

THERE is no sight of any agreement between the Institute of Chartered Accountants of India (ICAI) and the Department of Company Affairs (DCA) on the Bill that is hanging fire in Parliament. In all probability, with the drumbeat of elections already in the air, the much-bitten Bill is destined for the backburner.

During the Bill's hibernation, the new Council members may spend their time in collective prayer that their survival is assured by a new government that would rather let the sleeping dogs lie.

That apart, a recent posting on the Web site of the Institute is the Exposure Draft (ED) of a new auditing standard on "Engagements to Perform Agreed-upon Procedures regarding Financial Information".

Well, `agreed upon' is what everybody thinks about auditors' work, like in a game where, as a saying goes, `I beat as if I am beating, and you weep as if you are weeping.' No audit report, however clean and printed on the glossiest paper, is taken as such by normal readers.

Now, what are engagements to perform agreed-upon procedures (AUPs)? "The auditor is engaged by the client to issue a report of factual findings, based on specified procedures performed on specified subject matter of specified elements, accounts or items of a financial statement."

Three `specified's in one sentence, but that may not specify much, so you may try the example: "To perform certain procedures concerning individual items of financial data, say, accounts payable, accounts receivable, purchases from related parties and sales and profits of a segment of an entity, or a financial statement, say, a balance sheet or even a complete set of financial statements." What are those `certain' things, if you were to wonder, a clue may surface many paragraphs later.

Remember, AUP assignments are not casual jobs, because the ICAI mandates that these be governed by "ethical principles" such as integrity, objectivity, professional competence and due care, confidentiality, professional conduct, and technical standards. "Independence is not a requirement" for AUP job, though "where the auditor is not independent, a statement to that effect should be made in the report of factual findings." On this overused word `independence', a useful input emerging from a recent study of annual reports in the UK is that "in spite of recent corporate governance and reporting reforms, analysts still have good reason to be wary of auditors' independence claims" (www.accountingweb.co.uk).

Viewed thus, it should need a hefty dose of courage for an auditor to state that he or she is not independent.

The ED goes on to state that the work should be planned and documented. As in audit, "procedures applied in an engagement to perform agreed-upon procedures may include re-computation, comparison and other clerical accuracy checks, observation, inspection, and obtaining confirmations." There is a tutorial in the section on `reporting', spelling out the essentials of business correspondence: Begin with `title', `addressee', and end with `date of the report', `place of signature', and `auditor's signature'.

Appendix II of the ED is `confidential'; it shows an example of AUP output, that is, "a report on factual findings in connection with accounts receivable."

The story that unfolds here describes the work performed: "Obtained and checked the addition of the trial balance and compared the total to the balance in the related general ledger account"; "compared the list of major customers and the amounts outstanding to the related names and amounts in the trial balance"; "obtained customers' statements or confirmations from customers to confirm balances outstanding"; and so on. "Findings" are: "We found the addition to be correct and the total amount to be in agreement"; "we found the amounts compared to be in agreement"; and such.

One may wonder if such mundane work could have better been done by a computer, not needing a CA to append his signature and billing for fees as the work progressed.

The penultimate paragraph of the illustrative report might help in clearing such misgivings: "Had we performed additional procedures or had we performed an audit or review of the financial statements in accordance with the generally accepted auditing standards in India, other matters might have come to our attention that would have been reported to you."

Shall we agree to disagree, on AUPs?

AccountSpeak@yahoo.co.uk

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