ICAI News: Auditors have to be vigilant in assessing default probability 2020

ICAI News

ICAI News: COVID-19 crisis Auditors have to be vigilant in assessing default probability

Auditors will have to be more vigilant in assessing the probability of default of loans after three months, according to ICAI President Atul Kumar Gupta.

ICAI, the apex body of chartered accountants, has also come out with a detailed advisory on financial reporting in the wake of the coronavirus outbreak.

The advisory on ‘Impact of Coronavirus on Financial Reporting and the Auditors Consideration’ highlights various areas that require particular attention while preparing financial statements for 2019-20.

Members of the Institute of Chartered Accountants of India (ICAI) carry out audit works, including bank branch audits.

The deadline for bank branch audits has been further extended to June 30. It was earlier extended till April 20, according to Gupta.

Besides, the Reserve Bank has announced a three-month moratorium on all payments, including retail and corporate loans, as part of measures to mitigate the burden of debt servicing brought about by disruptions due to coronavirus pandemic.

Against this backdrop, Gupta told PTI said that auditors have to be more vigilant in order to assess whether an account would really be a non-performing asset (NPA) or not.

“For instance, somebody has no money and is not paying in April, still you have to say it is not an NPA,” he said.

An auditor would have to make a judgement in terms of assessing the “probability of default”. As per the Reserve Bank, there would be a moratorium on various instalments, including payments falling due from March 1 to May 31 such as the principal and/or interest components, bullet repayments, equated-monthly instalments, and credit card dues. The repayment schedule for such loans as also the residual tenor would be shifted across the board by three months after the moratorium period. Interest will continue to accrue on the outstanding portion of the term loans during the moratorium period.

Under the current circumstances, ICAI, in its advisory, said auditors must recognise that the manner in which they conducted the audits in the past may need significant modification to address the challenges and uncertainties arising out of the COVID-19 impact.

Auditors should exercise a very high degree of scepticism and be prepared to call out where the company’s narrative that the board presents is not specific, the advisory said.

we are only drawing the attention of preparers to some of the important requirements of Ind AS and AS, and this is not meant to be exhaustive and may differ based on specific facts, circumstances and business of respective preparers,” it added. Ind AS refers to Indian Accounting Standards.

ICAI has around three lakh members.

IMPORTANT ANNOUNCEMENT – POSTPONEMENT OF CA EXAMINATIONS, MAY 2020

ICAI News

Leave a Reply