Enquiry:
The particulars of query are:
• We were appointed as auditors of EOBI for the years ended June 30, 2007 to June 30, 2011.
• The audits for the years ended June 30, 2007 to June 30, 2010 were duly completed and audit reports were issued.
• We finished the field work for the audit of the year ended June 30, 2011 and provided the management of EOBI with our initialed audit report along with the financial statement for the year initialed for the purpose of identification.
• We in our cover letter requested the management of EOBI to have the financial statements approved by its Board of Trustees and meet other signing conditions after which we would sign our report.
• Due to various issues and changes in the Board of Trustees and management of EOBI neither the financial statements were approved nor the signing conditions met.
• Subsequently, the new Board of Trustees of EOBI appointed another firm of Chartered Accountants for the year ended June 30, 2012 onwards.
• The management of EOBI has now approached us to issue our audit report for the year ended June 30, 2011 as the financial statement have now been approved by the Board.
Considering the above facts, the Committee is requested to guide us whether under these circumstances we can issue the audit report on the financial statement for the year ended June 30, 2011, especially considering the fact that at present we are not the auditors of EOBI.
Opinion:
Considering the fact that the Board of Trustees (the Board) of EOBI changed prior to the approval of financial statements for the year ended June 30, 2011, and subsequently, the newly formed Board appointed another firm of chartered accountants as auditors for the year ended June 30, 2012, prior to the issuance of the signed audit report for the year ended June 30, 2011 by the predecessor auditor.
This has created an anomaly as traditionally the draft audited financial statements are approved by the Board and the retiring auditor sign the audit report thereon, prior to the appointment of the new auditor.
Given the fact that EOBI Act and Rules are silent on the above issue, therefore in Committee’s view, there is nothing barring the auditor to issue an audit report now (in the current date), provided that the financial statements and management representation letter are (now) approved and signed by the current Board and subsequent events’ effect on financial statements is considered by the auditor keeping in view the date of (now) the audit report.
Attention may also be drawn to the paragraphs 41 and A38 – A41 of ISA 700, ‘Forming an Opinion and Reporting on Financial Statements’:
41. The auditor’s report shall be dated no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion on the financial statements, including evidence that: (Ref: Para. A38 – A41)
(a) All the statements that comprise the financial statements, including the related notes, have been prepared; and
(b) Those with the recognized authority have asserted that they have taken responsibility for those financial statements.
Both paragraphs 41 and A41 of ISA 700 explain that the audit process is not complete until those with the recognized authority have asserted that they have taken responsibility for the financial statements, which is evidenced through approval of the Board. Accordingly the retiring auditor is obliged to sign the audit report for 2011, as all audit procedures have been completed unless something else has materialized during the intervening period.
Further, the auditor’s responsibility under ISA 560, ‘Subsequent Events,’ will stretch from July 1, 2011 to the date of the auditor’s report, and may require the performance of additional audit procedures.
In the light of above, the Committee is of the view that the retiring auditor may sign the audit report for the year ended June 30, 2011, after the financial statements have been approved by the Board.
However, for extra caution, the retiring auditor is also advised to act under legal advice.
(January 09, 2017)