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Y2K guidelines issued for financial auditors

An explanation of what Y2K is about, an outline of auditors' and management's responsibilities and an illustrative checklist along with examples of qualified opinions have been provided in the note.

T O D A Y

• The Mother of all ISPs • IIIT-B picks NIIT • CSI-ESS '99 • Y2K guidelines for CAs

The norms will change the way auditors view financial statements. They will also alter the nature of financial statements and auditor's reports in the coming year.

But adhering to guidelines will not mean auditors are providing assurances that the company is Y2K-compliant or that remediation steps have been successful.

ICAI says providing such assurances are beyond the audit scope.

As Kamlesh Vikamsey, central council member of the ICAI, says, "The primary responsibility rests upon the management to ensure the entity is prepared for the Y2K change and that business will not be materially affected.''

Nevertheless, auditors will have to make enquiries from the management. A checklist has been provided for regarding this.

ICAI's note states that "Based on existing knowledge of the client and its systems, supplemented with inquiries from the management, the auditor should consider whether the financial statements will be impacted because of the Y2K issue. If the impact is likely to be material, the auditor will have to consider the management's plan to control the impact, assess the effect on the financial statements and plan an appropriate audit procedure.''

In cases where auditors are not satisfied with the manner in which management address Y2K issues relating to financial statements, and where sufficient and appropriate evidence are not made available on steps taken to remedy the issue, the guidelines ask auditors to provide a disclaimer or qualify reports.

Illustrations in the guidelines say the auditor may have to qualify his report with information on equipment used by the entity and whether they would be inoperable in 2000 and if adequate depreciation has been provided for.

Similarly, if companies sell equipment that are not Y2K-compliant with product warranties then it may warrant adequate provisions for liabilities.

This, it is hoped, will keep the management on its toes and ensure that adequate steps are taken before it is too late.

- Compiled from the Indian media

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