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Voices on Reporting - Special session: Key Audit Matters and new standard on leases - Impact on technology sector

Voices on Reporting - Special session: Key Audit Matter

Continuing with the series of special sessions, this session focusses on the technology sector. In this session we will discuss the significant areas relating to lease accounting, where current guidance is expected to change due to implementation of new lease standards. Also we will discuss the potential areas where significant judgement and estimates are generally required and such areas could be considered as potential KAMs specific to technology sector.

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Continuing with the series of special sessions, this session focusses on the technology sector. In this session we will discuss the significant areas relating to lease accounting, where current guidance is expected to change due to implementation of new lease standards. Also we will discuss the potential areas where significant judgement and estimates are generally required and such areas could be considered as potential KAMs specific to technology sector.

KAM: The auditor’s report – the principal communication from the auditor to users of the audited financial statements – has undergone significant change around the world. Standard on Auditing (SA) 701, Communicating Key Audit Matters in the Independent Auditor’s Report which is based on International Standard on Auditing (ISA) 701, Communicating Key Audit Matters in the Independent Auditor’s Report is effective for audits of financial statements for periods beginning on or after 1 April 2018. The new auditing standard requires auditors to adopt a risk-based audit approach and communicate matters of most significance, as KAM in their audit report. The end result is a new and improved auditor’s report that provides more transparency about important aspects of the audit.

IFRS 16: The standard provides a new method for lease accounting and is applicable internationally from 1 January 2019. It is expected that in India this standard would replace Ind AS 17, Leases and would be applicable from 1 April 2019. The new standard would bring fundamental change in lease accounting by requiring most operating leases to be recognised on the balance sheet by a lessee. The proposed accounting guidance is likely to impact a large number of entities operating in diverse sectors particularly on key metrics such as Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA), debt/equity ratio etc.

 

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