Note on Understanding the Client — KYC, Business, Key People — ICAI Audit Working Paper
(Following draft may be used)
Objective: - Understanding the entity
To gain an understanding of the client and its industry sufficient to form our own point of view on the risks in the business that may have a significant effect on the financial statements, and/or on the audit.
A. The entity’s business and its industry and environment
| Legal and operating structure | XYZ Company Private Limited (“the Company”) was incorporated on July xx, 20xx. It is a wholly owned subsidiary of xxxxxxx |
|---|
| Conduct of operations | The registered office of the Company is situated at xxxxx.
The Company is engaged in the business of xxxxxx. The Company has manufacturing plant if any…………….. |
| Major Lenders | Major Lenders:
1.
2. |
| Major Customers | Major Customers: |
| Related parties | |
B. The entity’s accounting policies and practices
| Applicable financial reporting framework | |
|---|
| Accounting policies | |
C. Understanding on maintenance of books of account and financial reporting:
The Ministry of Company Affairs (MCA) vide its notification dated March 24, 2021 and subsequent notification dated April 1, 2022, has made it mandatory for every company to fulfill the requirement of an audit trail feature in their accounting software from 1st April, 2023.
The objective of MCA for mandating the requirement of an audit trail feature in accounting software is to mitigate the chances of fraudulent transactions or manipulation in the books of account of the company and to bring in more transparency.
With the help of audit trail, an auditor can trace every step of, the financial data of a particular transaction right from the general ledger.
The accounting software used by companies will have to comply with the provisions of the Companies (Accounts) Rules, 2014.
Rule 3(1) of the Companies (Accounts) Rules, 2014 requires that from 1st April 2023, every Company which uses accounting software for maintaining its books of account, shall:
a. Use only such accounting software which has a feature of recording audit trail of each and every transaction
b. Creating an edit log of each change made in books of account along with the date when such changes were made
c. Ensuring that the audit trail cannot be disabled
D. The entity’s past financial performance
The Company’s turnover for the year ended March 31, 2xx2, was INR xxxx million and Profit / (Loss) for the year ended March 31, 2xx2 was INR xxxx million.
- E. Other relevant details may be provided here
