NFRA Releases Auditor-Audit Committee Interactions Series 4: Accounting Estimates, Judgements & Impairment of Non-financial Assets
The series is not a formal standard or policy statement, but a reference material to aid those charged with governance.
NFRA - committee - Auditors - taxscan
NFRA - committee - Auditors - taxscan
The National Financial Reporting Authority (NFRA) has released Series 4 of its Auditor-Audit Committee Interactions, with this iteration focusing on accounting estimates, judgements and impairment of non-financial assets under Ind AS 36 and related auditing standards.
NFRA noted that preparation and presentation of financial statements inevitably involve judgements and estimates in complex areas such as impairment of assets, expected credit losses, provisions for liabilities and recognition of deferred tax assets.
To address these areas, the latest publication from the NFRA references legislation such as the Companies Act, 2013, the SEBI (LODR) Regulations and Key Standards on Auditing including SA 540 on auditing accounting estimates, SA 260 on communication with those charged with governance, and SA 701 on communicating key audit matters.
Furthermore, the latest release from the NFRA emphasises on the distinction between depreciation and impairment, explaining that while depreciation is a systematic allocation of the cost of an asset over its useful life, impairment occurs when the carrying amount of an asset exceeds its recoverable amount.
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The accounting standard Ind AS 36 prescribes procedures to ensure that assets are not carried above recoverable value, requiring entities to undertake impairment testing where indicators exist, as well as annual testing of goodwill and intangible assets with indefinite lives.
The release also contains a series of potential questions that Audit Committees may pose to auditors in evaluating impairment-related judgements. These include queries on identification of cash-generating units, testing of impairment indicators, use of management and auditor experts, reliability of assumptions in cash flow forecasts, discount rate determinations, sensitivity analysis and adequacy of disclosures.
The Auditor-Audit Committee Interactions series is aimed at strengthening dialogue between statutory auditors and audit committees, reinforcing the quality of audit oversight and corporate governance.
The NFRA has reiterated that the document is not a formal standard or policy statement but a reference material to aid those that undertake the duty of ensuring governance and compliance within their respective industries or working entities.
With this release, NFRA continues its series of Auditor-Audit Committee Interactions, building on earlier installments, all while reinforcing its commitment to improving audit quality and strengthening the accountability framework for companies and their auditors.
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