CSAS-1: Understanding the Auditing Standard on Audit Engagement

The concept of Secretarial Audit was introduced by the Companies Act, 2013, with the objective of ensuring that companies adhere to the prescribed rules, regulations, and legal frameworks. The role of conducting this audit is entrusted to a Company Secretary holding a valid Certificate of Practice (PCS). The Secretarial Audit verifies a company’s compliance with various laws, rules, and regulations. Upon completion, the auditor prepares a Secretarial Audit Reportin Form MR-3, which is submitted to the company’s members.

Applicability of Secretarial Audit

Secretarial Audit is mandatory for:

1. All Listed Companies
2. Public Companies meeting either of the following thresholds:
   • Paid-up share capital of ?50 crores or more.
   • Turnover of ?250 crores or more.

To strengthen the auditing capabilities of Company Secretaries, the Institute of Company Secretaries of India (ICSI)has undertaken initiatives to develop advanced auditing techniques and tools. This includes the establishment of the Auditing Standards Board, which lays the foundation for Company Secretaries Auditing Standards (CSAS) in India.

These standards aim to inculcate best practices in auditing, ensure uniformity and consistency, and uphold high ethical standards.

ICSI Auditing Standards Overview

The Council of the Institute of Company Secretaries of India (ICSI) has issued four Auditing Standards, designed to guide Company Secretaries in performing audits with professionalism and integrity:

1. CSAS-1: Auditing Standard on Audit Engagement
   • Establishes the auditor's responsibilities and the process of entering into agreements with the appointing authority.
2. CSAS-2: Auditing Standard on Audit Process and Documentation
   • Details the duties and procedures for conducting audits and maintaining proper records.
3. CSAS-3: Auditing Standard on Forming of Opinion
   • Covers the basis and methodology for forming the auditor's opinion.
4. CSAS-4: Auditing Standard on Secretarial Audit
   • Outlines the procedure and principles for conducting Secretarial Audits.

Detailed Explanation of CSAS-1: Auditing Standard on Audit Engagement

Objective

CSAS-1 provides a comprehensive framework to define the auditor’s responsibilities concerning an Audit Engagementand the process of entering into agreements with the Appointing Authority. It emphasizes the importance of transparency, accountability, and structured engagements.

Key Elements of Audit Engagement Process

1. Appointment of the Auditor

   • The auditor must be appointed as per the applicable laws, rules, regulations, standards, or guidelines.
   • The auditor must submit a certificate of eligibility to the Appointing Authority and obtain an Audit Engagement Letter.

2. Audit Engagement Letter
   This letter must clearly outline the following:

   • Objective and Scope of the Audit
   • Responsibilities: Both of the auditor and the auditee.
   • Written Representations: Including details of any previous auditor.
   • Timeline: The period within which the audit report must be submitted.
   • Terms of Engagement: Including audit fees and reimbursement of expenses.

   Additionally, the newly appointed auditor must inform the previous auditor about the appointment.

Conflicts of Interest

The standard requires auditors to avoid substantial conflicts of interest with the auditee. Any potential conflict of interest must be disclosed before accepting the engagement or as soon as it is identified.

Examples of Conflicts of Interest:

• Ownership:
  • If the auditor, their partners, or immediate family members hold more than 2% of the auditee’s share capital or shares worth ?50,000, whichever is lower.
  • If the auditor holds more than 2% of the voting power in the auditee.
• Financial Interest:
  • If the auditor owes ?5 lakhs or more to the auditee.
• Past Employment:
  • If the auditor was an employee of the auditee or its holding/subsidiary company within the past two years.

Confidentiality

The auditor must maintain strict confidentiality regarding information obtained during the audit. This includes:

• Not disclosing information without proper authorization or legal obligation.
• Prohibiting the use or sharing of such information with unauthorized individuals.
• Ensuring that employees and team members adhere to confidentiality norms.

Changes in Terms of Engagement

The auditor must adhere to the agreed terms of engagement. If any changes are required, they must be mutually agreed upon and documented through a supplementary or revised engagement letter.

Limits on Audit Engagements

The auditor must comply with any prescribed limits on the number of engagements, as set forth by applicable laws or the ICSI.

Conclusion

CSAS-1 establishes a structured framework for Audit Engagements, ensuring professionalism, transparency, and ethical compliance. By emphasizing clear communication, conflict management, confidentiality, and adherence to legal standards, CSAS-1 strengthens trust between auditors and appointing authorities.

Incorporating this standard not only promotes consistency and reliability in auditing practices but also fosters robust corporate governance, contributing to a culture of accountability and integrity.

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Article Compiled by:-

~Neel Lakhtariya

(LegalMantra.net Team)