Guidance on Digital Assurance

Insights into Digital Assurance

Technology is revolutionizing the way business operations are conducted and data is analysed. It has the potential to drastically reduce the time required for audits, thanks to automation and the ability to perform real-time testing. Now is the time to embrace digital transformation in the auditing process, leveraging automation and innovation to deliver more efficient and accurate audits.

Consequently, the Auditing and Assurance Standards Board (AASB) and Digital Accounting and Assurance Board (DAAB) of The Institute of Chartered Accountants of India, have jointly brought out a “Technical Guide on Digital Assurance” to provide guidance to its members to adopt enhanced use of technology in audit by implementing the use of digitally available external audit evidence and information.

For example: Under clause IX (b) of Companies (Auditor’s Report) Order (CARO), 2020, auditor needs to report that “whether the company is a declared wilful defaulter by any bank or financial institution or other lender”. Auditor can check whether the Company is wilful defaulter with any bank, NBFC or other financial institutions by visiting requisite websites (online external source) and check the company name there.

Standards on Auditing require the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion. If the auditor plans to use external information as audit evidence, the auditor is required to evaluate the relevance and reliability of the information.

The following factors may be important when considering the relevance and reliability of information obtained from an external information source, including its accuracy and completeness:

• The nature and authority of the external information source, including the extent of regulatory oversight (if applicable)

• The “independence” of the data – is the entity able to influence the information obtained

• The auditor’s past experience with the reliability of the information

• Market acceptability of the data source

• Whether the information has been subject to review or verification

• Whether the information is relevant and suitable for use in the manner in which it is being used, including the age of the information and the nature and strength of the relationship between the information and the entity’s transactions, and, if applicable, the information was developed taking into account the applicable financial reporting framework

• Alternative information that may contradict the information used

• Information about the methods used in preparing the information, how the methods are being applied including, where applicable, how models have been used in such application, and the controls over the methods

In light of aforesaid Technical Guide, SEBI held consultations with members of Primary Market Advisory Committee (PMAC) and it has been decided that, a framework for Management Statement and Auditor’s / Independent Practitioner’s Report on digital assurance based on information obtained from external data repositories, shall be mandated by listed company. This report will increase transparency, improve disclosure standards and enable better enforcement, and thereby provide greater investor protection and trust in the ecosystem.

The key aspects of aforesaid Management Statement and Auditor’s/ Independent Practitioner’s Report is as given below:

• Auditor shall conduct examination in accordance with the “Technical Guide on Digital Assurance” issued by the Institute of Chartered Accountants of India.

• Report shall be prepared by an auditor (Statutory Auditor or Independent Practitioner)

• Reporting on digital assurance shall be applicable on Top 100 listed entities by market capitalization from Financial Year 2024-25 onwards i.e. for the period ending on or after March 31, 2025.

• The listed entity shall submit management statement and auditor’s report on digital assurance to stock exchanges by 31^st July.

For Format of Management Statement and Auditor’s/ Independent Practitioner’s Report on digital assurance, kindly refer the “Technical Guide on Digital Assurance” of The Institute of Chartered Accountants of India.

Below are the Responsibilities of Auditor’s / Independent Practitioner’s:

Examine the Statement and the underlying audited financial statements and related books and records and report whether:

1. The financial information set out in Column C of the Statement (i.e., amount as per books of account) is in agreement with the books and records of the Company;

2. The financial information set out in Column D of the Statement (i.e., amount as per External Regulatory Information source) has been accurately extracted on the date mentioned in Column E of the Statement from the External Regulatory Information Source described in Column A of the Statement;

3. The computation of the amounts set out in Column F (Reconciling items [Column C-D]) of the Statement is arithmetically accurate.

Author

Himanshi, 1st Year Article at Prasad Azad & Co., CAs

Jan. 2025

For information purpose only