Embracing Digital Transformation: Electronic Signatures for Audit Reports and Certificates

In response to the novel Coronavirus outbreak, governments worldwide implemented various measures such as lockdowns, self-quarantine, travel restrictions, and social distancing protocols to prevent the virus from spreading further. These measures significantly impacted businesses worldwide, and it was no different for accounting professionals. However, while these precautions were essential, they presented auditors with difficulties accessing client premises to gather the necessary audit evidence, which is crucial for conducting audits effectively.

Can CAs use electronic signatures?

In order to support chartered accountants in conducting high-quality audits while ensuring compliance with auditing standards, the Institute of Chartered Accountants of India (ICAI) implemented several measures to facilitate their seamless performance of duties and responsibilities.

The primary pursuit of an audit is to provide an unbiased assessment of the financial statements of the audited entity. By ensuring the integrity and accuracy of audited financial statements, they become reliable sources of information for various stakeholders.

In light of this, in 2020, the ICAI allowed the use of Electronic Signatures for Signing Audit Reports and Certificates. As a result, chartered accountants across the country can now utilize their electronic signatures for signing audit reports and certificates. This progressive step aims to streamline the audit completion process and facilitate the signing of certificates by Chartered Accountants, promoting ease and efficiency in their professional responsibilities.

Dive in to learn more about these provisions in India for using electronic signatures in signing audit reports and certificates.

Provisions Concerning the Use of Electronic Signature for Authentication of Electronic Documents as per the IT Act, 2000

• Definition of Electronic Signature

  Under the provisions outlined in section 2(a), the term "electronic signature" denotes the verification of electronic documents by the individual subscribing to them through an electronic method, as detailed in the Second Schedule, which encompasses the utilization of an online digital signature.

• Section 3(A): Electronic Signature

  The user is permitted to verify electronic documents through an electronic signature or electronic authentication method solely under the following conditions:

  • It possesses credibility.(Reliable)
  • It is explicitly mentioned in the Second Schedule.

  For the Electronic Signature or Electronic Authentication Techniques to be considered reliable, certain conditions must be met:

  • The signature creation or authentication data must be associated with the individual signing or authenticating rather than any other person.
  • The signatory or authenticator must have control over the signature creation data or authentication data at the time of signing without involvement from any other individual.
  • Any modifications to the electronic signature after its application to electronic records should be identifiable.
  • Any alterations to the information after its authentication through an electronic signature should be detectable.
  • Moreover, it is necessary for such a signature to fulfill the requirements stipulated by the law.

  The authority of the Central Government includes the ability to incorporate or exclude any electronic signature or electronic authentication method, along with the procedure for applying such signatures to documents, through an official gazette notification.

• Section 4: Legal Recognition of Electronic Documents

  In specific situations, it may be required by law that certain information or content be presented in written, typewritten, or printed form. If such a requirement exists, it can be fulfilled by ensuring that the information or content:

  • Is provided in an electronic format
  • Is easily accessible for future reference

• Section 5: Legal Recognition of Electronic Signatures

  In certain situations, it is necessary to authenticate information or other relevant material according to legal requirements. This authentication can be accomplished by obtaining the signature or endorsement of an individual. If the specified electronic signature approved by the Central Government is used to authenticate the information or material, it would be considered compliant with the respective law.

Also Read: Electronic Signatures: Simplifying Workflows for Law Firms

Provisions Concerning the Use of Electronic Signature for Authentication of Electronic Documents as per the Indian Evidence Act, 1872

• Section 3: Interpretation Clause

  According to this section, evidence is defined as follows:

  • Oral evidence refers to all statements witnesses make concerning the matters being investigated, as permitted or required by the court
  • Documentary evidence refers to all documents and electronic records submitted to the court for examination.

• Section 47(A): Opinion with Regards to Digital Signature Where Relevant

  In specific scenarios, the court may be required to provide a judgment regarding the validity of an individual's electronic signature. When faced with such circumstances, the court considers the opinion of the Certified Authority responsible for issuing the electronic signature certificate as a crucial piece of evidence.

• Section 67(A): Proof as To Electronic Signature

  In situations where an individual's electronic signature is applied to electronic records, it is necessary to establish proof that the signature belongs to that individual. However, this prerequisite does not apply when the e-signature used is secure. Therefore, based on the regulations outlined in the Acts as mentioned above, it can be determined that auditors have been granted permission to utilize electronic signatures to authenticate different documents. Thus, ICAI members can employ an electronic signature for signing:

  • Audit reports
  • Reports issued under any attestation engagement
  • Certificates

It should be acknowledged that adherence to the regulations outlined in the law, auditing standards, and pertinent notifications issued by ICAI regarding electronic signatures is required by auditors, subject to a condition. This condition necessitates the inclusion of the Unique Document Identification Number (UDIN) in both manually and digitally signed reports, as well as in certificates that are uploaded online.

• Financial Audit Report
• Net worth/ Turnover Certificates
• Search Status Reports
• Valuation Report
• Tax Audit Report
• GST Audit Report
• Statutory Audit Report
• Internal Audit Report
• Current Account Opening Introduction Form.
• Projected Statements/Reports
• Financial Statements Certification
• Working Capital/Cash Flow Statements Certification.
• Engagement/Retirement Forms.
• Exam Forms/Membership Forms for ICAI.

Furthermore, like any other organization, a CA firm must execute various documents such as appointment letters, engagement letters, non-disclosure agreements (NDAs), and service agreements.

What documents cannot be signed using electronic signatures?

In order to ensure legal enforceability, certain documents cannot be signed electronically and require traditional "wet" signatures. These include:

1. Negotiable Instruments:
   • Examples: Promissory notes or bills of exchange, excluding cheques.
2. Powers of Attorney:
   • Documents granting someone the authority to act on behalf of another person.
3. Trust Deeds:
   • Legal documents that establish a trust and outline its terms and conditions.
4. Wills and Testamentary Dispositions:
   • Last will, along with any other documents of the distribution of assets after one's passing.
5. Real Estate Contracts:
   • Leases or sale agreements related to properties.

It is important to note that this list is not exhaustive, and it is always advisable to consult with legal professionals to determine the appropriate signing method for specific documents to ensure compliance with applicable laws and regulations.

Conclusion

The use of electronic signatures has proven to be revolutionary for businesses. From cutting unnecessary costs to reducing time spent on redundant tasks, elevating business functions, and streamlining business operations, online digital signatures can benefit organizations in many ways. And the same goes for auditing professionals. Now that there are enough provisions for the use of electronic signatures, we must encourage their use.

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DISCLAIMER: The information on this site is for general information purposes only and is not intended to serve as legal advice. Laws governing the subject matter may change quickly, and Exela cannot guarantee that all the information on this site is current or correct. Should you have specific legal questions about any of the information on this site, you should consult with a licensed attorney in your area.

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