The Institute of Chartered Accountants of India (ICAI), the regulator of the audit profession, has urged the Ministry of Corporate Affairs (MCA) to incorporate the aspect of “modified” audit opinions in the annual returns furnished by companies.

Any such requirement in the annual returns — whether the auditor has modified/qualified the financial statements or not — will help the MCA get a better handle over the statutory auditor’s work in attestation of financial statements, ICAI sources said.

Currently, there is no specific column/entry in the annual returns of companies requiring companies to disclose if their financial statements had been modified/qualified by the statutory auditors or not for the financial year under review, said a top ICAI official.

Ashok Haldia, former Secretary at the ICAI, felt that there was no harm in adding one more disclosure requirement for corporates in their annual returns to the MCA. “The suggestion has merits, as once prevalence of modified audit opinion is disclosed in annual returns, the stakeholders are better informed. This would lead them to refer to auditors’ report to understand the nature of modification and its impact on quality of financial statements,” Haldia told BusinessLine .

Currently, auditors have to verify and opine on the effectiveness of a business’s internal controls. They are also obliged to report incidences that suggest mismanagement or fraud.

Two main reasons

Modified or qualified audit opinions are mainly given for two reasons. The first is scope limitation, which means the auditor doesn’t have access to enough, or relevant, information.

The second is in situations where there is a departure from applicable financial reporting framework. This may happen either inadvertently or due to negligence on the part of the client being audited.

In India, there are still no public disclosures on how regulators and the government view and handle modified/qualified audit reports.

Related Topics
comment COMMENT NOW