The Hindu Business Line : Auditors should check the stocks but not necessarily talk to lawyers

FOR your information, AAS 34 is just out. The new Auditing and Assurance Standard is about audit evidence — on `additional considerations for specific items'. If you want to see the text, check your snail mail for the March issue of the CA journal that should have reached you by now, because the site of the accounting body www.icai.org is still showing the Exposure Draft.

`What's new' on the homepage isn't screaming about the latest pronouncement, with as much verve as one does of a new arrival, perhaps because these things aren't as exciting, after all, as entries such as `Course on General Management & Communication Skills', `Foundation stone of ICAI University laid,' and `Tender Notice of NHAI' that grab the top slots in `announcements'.

Predictably, the Institute disappoints by not explaining why this new standard has come about. AAS 34 talks about attendance at physical inventory counting, inquiry regarding litigation and claims, valuation and disclosure of long-term investments, and segment information. Well, aren't these too routine to merit a separate pronouncement, one may wonder?

If you enquire, you'd know that the ground that AAS 34 covers was taken care of in the Guidance Notes all along. Does that mean we can strike out those GNs to reduce the baggage of ICAI pronouncements on our backs? No, please, you can't, because the penultimate page of the CA journal that announces the withdrawal of `certain Guidance Notes' doesn't refer to AAS 34. Pray, why? Because guidance notes are far more elaborate with regard to areas that the new auditing standard covers.

Viewed optimistically, AAS 34 is welcome for two reasons. One, it graduates certain aspects of audit from the GN level onto a standard, thus making compliance mandatory. Such as, stipulating that "the auditor should perform audit procedures designed to obtain sufficient appropriate audit evidence during his attendance at physical inventory counting," and similarly for "appropriate disclosure of segment information". Two, we're keeping up with the Joneses, and will score better when benchmarking our standard setting with the international one.

What are the differences between the Exposure Draft of AAS 34 and the final version? Don't expect the ICAI to explain the six differences, because they want it to be as thrilling as clearing the first round in the Takeshi's Castle game show on Pogo channel. Which, I guess, I did, when spotting paragraph 23 shown as bold in the ED.

It states that when litigation or claims have been identified by the management or when the auditor believes they may exist, and are likely to be material, "the auditor should seek direct communication with the entity's lawyer." However, in the final AAS 34, `should' has become `may'.

Why? "Due to practical reasons," as one can decipher from the unconvincing `compatibility with the International Standard on Auditing ISA 501'. It reads: "The auditor need not necessarily communicate with the entity's lawyers and such other professionals." But the ISA is categorical that "the auditor should communicate with the entity's lawyers to obtain sufficient appropriate evidence as to whether potentially material litigation and claims are known and management's estimates of the financial implications, including costs, are reliable," as the Institute paraphrases. The `why' remains unanswered, though.

To continue the chain of thought, we may say that the Council of the ICAI, too, may seek to communicate the purpose behind its new pronouncements and also inform CAs how the standards got chiselled out. Even if it were to read as simply as: "Item AAS 34: We sat around the table, and were munching kajus when the chairman informed everybody that the typist was done with a search-and-replace operation to substitute all `ISA 501' with `AAS 34' and all `should' with `may'. One of us asked, why not June? We all laughed because it was only March, and it was already time for tea break, so we ticked the item as done."

Tax calc for free

GOWRI Shankar is a SOX Consultant in Bangalore. And he is both a cost accountant and company secretary. He has put together an Excel file for income-tax computation for AY 2005-06 (FY 2004-05), with as many intricacies as he can imagine.

Please note that it's not a goal-seeking spreadsheet where you enter an amount as tax that you want to pay, and press the recalc button to fill in all the other cells, because Gowri's idea is to use technology to comply with law and compute income from salary.

"Once the Finance Act, 2005 is in place, I've also decided to upgrade the file for the next financial year," writes Gowri, offering a free download of his work at www.incometaxindia.tk. Good work to connect to!

Economists can be awful!

WHEN accountants make even small mistakes nobody forgives. But economists are normally luckier when they miss reading the big variables, because they're given the benefit of doubt as having been let down by wrong models. Not Barry Ritholtz, though, whose recent piece titled `The Mystery of the Awful Economists' explores ten most likely factors contributing to forecasting errors, in the light of unemployment estimates in the US.

The first two are globalisation and outsourcing, and productivity gains, both of which Barry dismisses as not the likely culprits.

His list of `unconventional' suspects include: post-bubble excess capacity; unintended consequences of accelerated depreciation as in the case of enterprise resource applications; dividend tax cuts leading to higher payouts and lower working capital; political bias of economists whose "jingoistic jeering or cheering is less an econometric exercise, and more a political manoeuvre". Catch up with Barry on http://bigpicture.typepad.com.

AccountSpeak@TheHindu.co.in

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