A recent survey ( Rawat 2010 ) states that the Companies Act ( 1956 ) provides the basic demands associating to fiscal coverage of all companies incorporated in India. Rawat ( 2010, p.12 ) claims that the Companies Act requires the readying, presentation, publication and revelation of fiscal statements: – and an audit of all companies by a member-in-practice certified by the Institute of Chartered Accountants of India ( ICAI ) . Section 211 ( Part 1, Schedule VI ) to the Act prescribe the signifier, contents, and minimal revelation demands of fiscal statements. ( hypertext transfer protocol: //www.lexadin.nl )
Gupta ( 2001 pp.10-12 ) claims that Indian accounting profession began its history with the passage of the Indian Companies Act 1857 that introduced for the first clip the construct of fixing company balance sheet on voluntary footing. Fredrick, Frost & A ; Meek ( 2002 ) informs that, the first Australian demand for the enrollment of company hearers appeared in the Victorian Companies Act of 1896.
The two chief pieces of statute law regulating the securities market in INDIA: Harmonizing to ( Gupta, 2001 ) Clause 41 of Stock Exchange Listing Agreements requires all listed companies to print one-year audited fiscal statements. Listed companies in India are required to follow with, Securities and Exchange Board of India ( SEBI ) Act of 1992, demands as defined even in the Securities Contracts ( Regulation Act 1956.Further, the Companies Act 1956 specifies the audit of one-year histories of a company is mandatory and indispensable portion of an integrated concern. ( hypertext transfer protocol: //www.sebi.gov.in )
The survey ( Kapoor, 1995 ) states that subdivision 226 of the Act provides for the making and disqualification of hearers that lone persons possessing the needed cognition and accomplishment can be appointed as hearers and they should be independent in transporting out their work to give an indifferent sentiment based on nonsubjective appraisal of facts. The writer farther founds that the hearer should hold no involvement fiscal and otherwise whether straight and indirectly, in the company and/or in its direction. Section 224 ( 1 ) of the Act seeks to guarantee that the assignment of the hearers is non in the custodies of managers instead vested in general organic structure of stockholders. ( hypertext transfer protocol: //www.mca.gov.in )
The Chartered Accountant Act ( 1949 ) governs the accounting profession in India: The Chartered Accountant Act, 1949 ( Act No. XXXVIII of 1949 ) states the followers: –
Formation of Quality Review Board: Section 28A, the board would be an independent organic structure mandated to repair the criterions for audit services, guide members to better the quality of services, and reexamine the quality of services provided by the hearers.
Revision of disciplinary action process against ICAI member.
Addition in the proportion of Government representation on the ICAI council. ( hypertext transfer protocol: //www.lexadin.nl )
Directors and direction of company are required to guarantee conformity with commissariats of the Companies Act ( 1956 ) . Harmonizing to Bajpayee & A ; Srivastava ( 2009, p.17 ) a company`s hearer has an duty to convey to the attending of the stockholders any disobedience with commissariats of the Act with regard to the fiscal coverage and associated legal facet.
Therefore, a recent survey ( Cosserat and Rodda 2009 ) claims that ( a ) proficient competency,
( B ) professional independency play a important function in dispatching responsibilities in pattern to attest what he does non believe to be true and take sensible attention and accomplishment before he believes that what he attest to be true.
Structural and Regulative Comparison: A comprehensive survey on coverage demands conducted ( Wallace-Wanda, 2004 ) periodic coverage demands vary significantly. ASX has a comprehensive periodic coverage model in add-on to uninterrupted revelation. All companies must supply full twelvemonth histories in add-on to half annual studies.
Arens et Al. ( 2007, p.111 ) all unwraping entities, public companies and big proprietary companies are required by jurisprudence to hold their one-year fiscal statements audited. Further ( Fredrick, Frost & A ; Meek 2002 ) states that in add-on to hold its half-year fiscal statements either audited or reviewed. Section 227B of the Corporate Law Economic Reform Program ( Audit Reform and Corporate Disclosure ) Act 2004 establishes the Auditing and Assurance Standards Board ( AUASB ) as the independent statutory organic structure, which, under subdivision 227B of the Australian Securities and Investment Commission Act 2001, may explicate counsel on scrutinizing and confidence affairs. In the context of reforming model Thibodeau & A ; Frier ( 2007 ) states that the revised and redrafted Australian Auditing Standards ( ASAs ) will utilize the tantamount ISAs as the underlying criterion and are expected to be operative for audit of fiscal studies with describing periods get downing on or after 1 January 2010.
The Auditing and Assurance Standards Board ( AASB ) of the ICAI recognizes the development of Auditing and Assurance Standards ( AAS ) on the footing of continual acceptance of ISAs. The AASB compares all AASs with current version of ISAs and examines any important differences. ( http: //web.ifac.org/isa-adoption/chart )
“ A landmark understanding between CPA Australia and ICAI highlights the progressively planetary nature of the accounting profession ” said President, CPA Australia, Alex Malley. ( MOU with CPA Australia acknowledging each others making ) ( www.caclubindia.com )
Arens et Al. ( 2007, pp. 110-111 ) states the ASX Corporate Governance Council ‘s indispensable corporate administration rules specify that a company should:
Promote ethical and responsible determination devising
Safeguarding unity in fiscal coverage
Making seasonably and balanced revelation and ; moreover
And, harmonizing to Johns ( 1995, p.35 ) the regulative mechanism turn toing corporate administration in Australia has emphasized ‘accountability ‘ and ‘transparency ‘ through required revelations particularly to stockholders. Arens et Al. ( 2007 pp.110-111 ) claims that commissariats of Corporations Act 2001 and ordinances address audit quality as that how good an audit detects and studies stuff misstatements in fiscal statements.
Mukherjee, ( 2007 p,24 ) states that Indian GAAP ( Generally Accepted Accounting Principles ) , will fall in line with International Financial Reporting System ( IFRS ) by 2009 as an Ernst & A ; Young India Survey showed that 95 % of CFOs of the companies wanted India to follow planetary accounting criterions. The study farther reflects that 64 % favoured IFRS and 31 % supported US GAAP. Mukherjee ( 2007 ) further claims that the SEBI ( Securities Exchange Board of India ) does non uneasily monitor obeisance with fiscal coverage demands, which is different from many other international securities market regulators.
AUASB releases charter: McCabe & A ; Dillon ( 2010, pp62-64 ) recommended that the AUASB has released three exposure bill of exchanges ( ED ) of Australian Auditing Standards in Clarity format. They are:
ED 18/09: Proposed Auditing Standard ASA 101 Preamble to Australian Auditing Standards.
ED 19/09: Proposed Auditing Standard ASA 520 Analytical Procedures.
ED 20/09: Proposed Auditing Standard on Review Engagements ASRD 2410 Review of a fiscal study performed by the independent hearer of the entity.
Clarity Standards: Deductions For Australian Auditing: McCabe & A ; Dillon ( 2010 pp 62-64 ) further provinces that on 30 October 2009 the AUASB issued the revised and redrafted suite of ASAs, which apply to audits of fiscal studies for periods get downing on or after 1 January 2010.
Corporation Act 2001- Sec 307A
Harmonizing to survey ( Ravic 2004 ) claims that audit to be conducted in conformity with auditing criterions:
If an single hearer or an audit company, behaviors
An audit or reappraisal of the fiscal study for a fiscal twelvemonth ; or
An audit of the fiscal study for a half twelvemonth ;
the audit or reappraisal in conformity with auditing criterions and the lead hearer ( who is chiefly responsible to the audit house or to the single hearer as the instance may be, sec 324AF Corporations Act 2001 ) must guarantee that the audit or reappraisal is conducted with in conformity with the auditing criterions.
Corporation Act 2001 sec 336 describes scrutinizing criterions and the power AUASBs to do auditing criterions. ( hypertext transfer protocol: //www.austlii.edu.au )
International Response to Auditing Needs: Harmonizing to Portelli ( 2007, pp64-66 ) the constitution of the International Auditing and Assurance Standards Board ( IAASB ) , of International Federation of Accountants ( IFAC ) , to better the quality and uniformity of pattern throughout the universe, by publishing International Standards on Auditing ( ISAs ) and counsel on its application is a certain response to the above demand.
India ‘s Response to Auditing Needs: The survey on criterions by Bajpayee & A ; Srivastava ( 2009, pp52-55 ) states that the constitution of Auditing Practices Committee, or Auditing and Assurance Standards Board ( as it is now known in September, 1982 ) is one of the stairss by ICAI to guarantee that its members discharge their responsibilities with due professional attention, competency and earnestness. The chief aim is being issue of scrutinizing criterions under the authorization of the council.
Rationale of Auditing Standards: Bajpayee & A ; Srivastava ( 2009, pp58-62 ) further explains that these criterions represent a codification of the best patterns of the profession, which already exist to assist in optimal discharge of professional responsibilities. These criterions promote uniformity and comparison in pattern.
International Harmonization of scrutinizing Standards: The extended survey by Patel et Al. ( 2002 ) found that the ICAI is a member of the International Federation of Accountants. Therefore as a affair of policy, the auditing criterions issued by the ICAI are in harmoniousness with the International Standards on Auditing ( ISAs ) . Harmonizing to Bajpayee & A ; Srivastava ( 2009 ) presently, IAASB of the IFAC has issued 39 engagement criterions, consisting 1 criterion on quality control ( ISQC ) , 32 ISAs, 2 International criterions on reappraisal battle ( ISREs ) , 2 International criterions on confidence battle ( ISAEs ) and 2 International Standards on related services ( ISRSs ) . The writer farther provinces that the ICAI has issued 35 Auditing Standards matching to the battle criterions issued by the IAASB of the ISAB.
ICAI uses IFRS and ISA extensively in developing the national criterions. Patel et Al. ( 2002, p.28 ) states that the ICAI duly considers the IFRS and ISA in standard scene procedure and may go from these criterions if justified, maintaining in head the local environment and patterns.
The Ethical Scenario: Conformity with Auditing Standards
As per the survey done by Jakubowski et Al. ( 2002 ) it is recommended that while dispatching their attest maps, it is the responsibility of the member of the Institute to guarantee that the auditing criterions are followed in the audit of fiscal information covered by the audit studies. Bajpayee & A ; Srivastava ( 2009 ) states that if for any ground the member is unable to execute an audit in conformity with the by and large accepted auditing criterions, his study should pull attending to any material goings there signifier, neglecting which he would be held guilty of professional misconduct under clause 9 of part1 of the 2nd agenda to the Charted Accountants Act 1949.
Comparative Position of Standards, issued by the International Auditing Assurance Standards Board of the International Federation of Accountants vis-a-vis. Auditing and Assurance Standards ( AASs ) issued by ICAI. The survey by Gupta ( 2001 ) compares the comparative place of Indian Standards with respect Ti ISAs
New AAS No. ( Old no. ) Title of the Statement ( Effective Date ) : Rawat ( 2010, pp.100-102 ) clarifies the current names of Indian Standards:
SA 200 ( AAS 01 ) : Aims and Scope of the Audit of Financial Statements ( 01/04/1985 )
SA 200A ( AAS 02 ) : Aims and Scope of the Audit of Financial Statements ( 01/04/1985 )
SA 230 ( AAS 03 ) : Documentation ( 01/07/1985 )
SA 240 ( AAS 04 ) : The Auditor ‘s Duty to See Fraud and Error in an Audited account of Fiscal Statements ( 01/04/2003 ) .
Australian Auditing Standards ( ASAs ) : Portelli ( 2007, p66 ) recommends that ASA 200 ( Objective and General Principles Regulating an Audited account of a fiscal study ) , ASA 240 ( The hearer ‘s duty to see fraud in an audit of fiscal study and ASA 330 ( The hearer ‘s processs in response to assessed hazard ) are in conformance with the ISAs.
Portelli ( 2007 ) further provinces that in Australia there is a issue about the legal position of scrutinizing criterions which were deprived of legal backup of the Corporations Act 2001. But, McCabee & A ; Dillon ( 2010 ) states that CLERP 9 seeks to right this issue.
Harmonization of AUASB with ISAs: The research done by Gendron, Suddaby & A ; Lam ( 2006 pp.190-192 ) found that Australia made an project to follow ISAs by January 2005. The new Australian Auditing Standards included AUS 202 ( Aims and General Principles Regulating an Audited account of a Financial Report [ revised ] ) , AUS 406 ( The Auditor ‘s Procedures in Response to Assessed Risks [ new ] ) and AUS 502 ( Audit Evidence ) .
Comparison of Australian Auditing Standards with the ISAs:
Niven ( 2010, p.68 ) states that the ISA 920 ( Battles to execute agreed-upon processs sing fiscal information ) is fundamentally consistent with the Australian Standard except for the affairs discussed below:
AUS 904.11 is extra to ISA 920 saying that in add-on to guarantee that there is a clear apprehension, the AUASB is of the position that the hearer & A ; entity should hold on the footings of the battle.
ISA 920 requires to follow with the moralss of IFAC & A ; AUS 904 requires an hearer to follow with the ethical demands of CPA & A ; ICAA. Unlike the IFAC moralss which requires covering supervising of staff, whereas CPA & A ; ICAA do non cover with this issue.
The Auditing & A ; Assurance Standards Board is of the position that the independency of the hearer in transporting out the agreed upon processs and describing the factual findings is cardinal in the context of an agreed upon processs engagement. This is inconsistent with ISA 920 which indicates that the independency of the hearer is non a demand, but requires the hearer O province in the study of factual findings when the hearer is non independent.
Reconciliation of the above Indian Standards: Bajpayee & A ; Srivastava ( 2009 ) discovered the underlying:
ISA non relevant to the Indian Legal Environment: ISA 720 ( Other Information in Documents Containing Audited Financial Statements ) & A ; ISA 545 ( Auditing Fair Value Measurements and Disclosures )
ISAs matching to which the bill of exchange of AASs are under consideration of the Council: ISQC 1 ( Quality Control for houses that perform Audited accounts and Reviews of Historical Financial Information, and other Assurance and related services battles ) .
ISA yet to be considered by the AASB of ICAI: ISA 701 ( Modifications to the Independent Auditor ‘s Report ) , ISA 800 ( The Auditor ‘s Report on Special Purpose Audit Engagements & A ; ISA 2410, ISA 3000.
Indian Auditing and Assurance Standards are loosely in line with ISA: The extended survey ( Rawat 2010 ) found that the text of AAS by and large replicates the text of the tantamount ISA with alterations that adapt to local fortunes when considered necessary. For e.g. Indian AAS, Responsibilities of Joint Auditors, does non hold an tantamount ISA due to the prevalence of joint audits in state-owned endeavors, Bankss and insurance companies.
The Gap between AAS and ISA is important in its stuff affect on confidence battles, except in few countries: Bajpayee & A ; Srivastava ( 2009 ) states that the criterion on “ audit sampling and other selective testing processs, ” both as written and as practiced in the state, significantly differs from ISA.
APES ; Accounting Professional and Ethical Standards: The criterions issued by the APES Board include the codification of moralss for professional comptrollers. The alone grade of the accounting is the duty to move in public involvement.
APES 110 and amendments to this Code conform to the Code of Ethics for Professional Accountants Section 290 ( Revised ) issued by International Ethics Standard Board for Accountants ( IESBA ) in July 2006. The hearer independency demands in APES 110 are aligned with the Australian Corporations Act.
Difference between APES 110 and the IFAC Code:
Section 290 in APES 110 by and large refers to Audit Clients whereas the IFAC codification refers to Financial Statements Audit Clients.
Section320.2 of APES 110 to boot provinces that a member in concern should guarantee conformity with professional criterions.
Code of professional behavior regulation comparing: ( Cross state comparing )
Jakubowski et Al. ( 2002, pp111-129 ) explains the comparative sphere of codifications of scrutinizing as under:
Therefore, Jakubowski et Al. ( 2002 ) further explains that independency in India is impaired:
If any relation of the member is deemed to hold a significant involvement in the concern
As a consequence of loans to or from clients.
And ; as per the findings of Jakubowski et Al. ( 2002 ) stresses that the Australian codification provinces members may keep portions in a private company or be a member of a house transporting on a commercial project if these are simply investings ; provided the member does n’t well take part in the active direction of the house. And, furthermore Australian codification ‘only ‘ provinces to transport out the work in conformity with the proficient and professional criterions relevant to the work.
Comparison of Similarities:
Jakubowski et Al. ( 2002 ) explains that even in the face of disparate economic, political, societal, legal and cultural environments between these two states, there is some grade of convergence in the ways different professional accounting organisations define their regulations of behavior. The extended survey done by Patel et Al. ( 2002, pp12-28 ) recommends a certain grade of unanimity is detected in the comparing of codifications, but certain ethical regulations are of import and should be of concern irrespective of national application. Such unanimity tends to follow some common ethical parametric quantities and rules. The research by Jakubowski et Al. ( 2002 ) found that regulations related to independency, unity, struggles of involvement are few illustrations of cosmopolitan applications irrespective of nationalities.
Revising the ICAI Code of Ethics, to convey in line with the IFAC codification of Professional Ethical motives: The in deepness research ( Rawat, 2010 ) found that some limitations prescribed under the current ICAI codification of moralss need immediate alteration in order to increase the fight of Indian Audited account Firms. Rawat, ( 2010, 212-214 ) further found that the Naresh Chandra Committee has made several recommendations in this respect that should be legislated. The writer concludes that several regulations defined by ICAI appear stricter than those defined by IFAC.
Cultural Influences: Gendron, Suddaby & A ; Lam ( 2006 pp190-193 ) recommends that in the codifications of professional behavior two facets of audit independency are recognized by and large
Independence in fact which set up the importance of fiscal, concern or household relationships that may impact auditor-client dealingss.
Independence in visual aspect or perceptual experience is more a affair of mental attitude and potentially influenced by cultural background.
The survey by Patel et Al. ( 2002 pp28-31 ) recognizes that Australia placeholders for the Anglo-American bunch ( UK, US, Canada ) and India placeholder for the Asiatic Indian bunchs. But, both are members of the “ British Commonwealth ” theoretical account of accounting, inherited from UK, corporate statute law and accounting patterns where “ true and just ” position and exercising of professional judgement are as of import. Further Patel et Al. ( 2002 pp30-31 ) explains that the construct of an person as a separate individual to make up one’s mind and distinguish the ethical and unethical is by and large absent among bulk driven Indians, whereas Australians ( Anglo American Cluster ) topographic point more importance to individuality and independency. In the context of auditor-client relationship the client is regarded as more powerful party because of the option of exchanging hearers. Patel et Al. ( 2002 ) claims that because of cultural apparatus of keeping harmonious interpersonal dealingss Indian Accountants are more likely to submit to clients and the 2nd ground as compared to Australia people in India are influenced in their ain opinion and appraisal of others opinion. The methodological analysis adopted by Patel et Al. ( 2002 ) found the responses to the questionnaire to “ big-six ” houses in India and Australia in which Indian faculty members regarded importance of ; ( I ) holding good working relationships with higher-ups, ( two ) responsibility, earnestness and dedication at work and ( three ) turning away of struggle and care of hierarchal equilibrium and harmoniousness. And, Australian faculty members professed the importance of development of an individualistic “ competent ego ” and endeavoring for power equalization. Therefore, the Australian comptrollers are less likely to submit to clients than the Indian comptrollers. Therefore, harmonizing to Gendron, Suddaby & A ; Lam ( 2006 pp.150-156 ) four points distinguishing Australian Accountants from Indians associating to the rating of hearer ‘s behavior are:
Fair/unfair, 2. Just/unjust, 3. Acceptable/unacceptable to household, 4. Culturally acceptable/unacceptable. Therefore, the first three points differentiate on the footing of rating of determination in footings of built-in equity and justness. The last being a constituent of comparative ethical opinion influenced by cultural backgrounds.
Indian Audited account: Elusive Independence: The critical research by Mehra ( 2009 pp.56-58 ) states that the Satyam scam an event of “ Horrifying Magnitude ” . Mehra ( 2009 ) states that on January 12, 2009 elected representatives of comptrollers and hearers debated the cozenage and PriceWaterhouseCoopers ‘s function in it. The recommendations by Mehra ( 2009 ) states that the demand is for greater independency from the companies they audit. Mehra ( 2009 ) further points that the inquiry is ‘How can the statutory hearers be independent if they are paid by the company they are supposed to scrutinize? Mehra ( 2009 ) found that the fees can act upon the study card, it is the concluding unit of ammunition of treatments within the direction where corners are cut and the histories are window dressed. “ Independent ” managers on the Satyam board were non truly independent and that hearers frequently acted in collusion with corrupt company directors. Furthermore, the histories had been audited by internationally reputed house PWCs.
Australian Scenario: The survey by Gendron, Suddaby & A ; Lam ( 2006 ) depicts that the prostration of Arthur Anderson in 2002 is frequently viewed as holding generated considerable emphasis on accounting. Andrews ( 2006 pp.66-67 ) explains that the independency of Andersen was extremely questionable as three former spouses of the house sat in the HIH board. But, harmonizing to McCabe & A ; Dillon ( 2010 pp.62-64 ) the true and just standard in Australia was undermined and now under the CLERP 9 Act, managers are now required to explicate that why the conformity with accounting criterions shadows the true and just position. This saga unfolded equal grounds as to hapless corporate administration and as to any default on the portion of the hearer, Arthur Anderson ( Andrews 2006 ) . The prostration of HIH was merely one of other dramatic failures including Harris Scarfe and One.Tel ( Andrews 2006 ) . Harmonizing to Gendron, Suddaby & A ; Lam ( 2006 pp.168-170 ) Harris Scarfe ‘s CFO Alan Hodgson served a prima function in the debasement of company histories and studies. The survey by Andrews ( 2006 pp.66-67 ) expains One.Tel ‘s strategic determinations drove such fiscal strain that its histories were manipulated to conceal losingss ( by change overing disbursals into capital outgo ) and ensured the continuation of fillip and wages ( unreal ) being paid.
Effective Approach: corporate prostration after-effects ; Thibodeau & A ; Frier ( 2007 ) claims that Australia, as effected by international and domestic corporate prostrations took a assorted attack to lend to their self-regulation by utilizing the powers of regulative organic structures and ability of professional organic structures. The survey ( Thibodeau & A ; Frier 2007 ) found that this is reflected by important alterations proposed by Corporate Law Economic Reform Program CLERP 9 and the AUS 1 which requires an hearer non merely to be independent, but besides appear to be independent.
Critical Review of ICAI ( INDIA ) : Foregrounding the really beginning of professionalism: the recent survey ( Rawat 2010 ) found the followers:
University classs in accounting focal point on the Indian Standards and do non cover International Financial Reporting Standards and International Standards on Auditing.
The Chartered Accountancy course of study includes professional moralss as a subject in a topic, and non as a separate topic
Therefore, betterments can be achieved by development and airing of practical guidelines on the execution of scrutinizing criterions.
Harmonizing to Pandia ( 2002 pp.7-9 ) the audit profession in India has brought certain steps to increase its ain regulation for illustration “ limited ” half annual reappraisals. But, Pandia ( 2002 ) further provinces that whenever there was an insufficiency of SEBI to forestall corporate cozenages and UTI come ining into controversial minutess the accounting criterions of US were adopted as benchmarks. Mehra ( 2009 pp.56-58 ) clarifies that the little stockholder is the ultimate victim of all cozenages who realize on audited histories and is deceived by the irresponsible behavior of non merely the company direction but besides the statutory and internal hearer.