Form 3CD is a critical annexure to the tax audit report prescribed under section 44AB of the Income Tax Act, 1961. It contains specific clauses that demand disclosures by the tax auditor relating to various provisions of the Act. Clause 18 of Form 3CD pertains to the reporting of depreciation allowable under section 32 of the Act. This clause mandates the auditor to provide details of depreciation claimed or allowable in accordance with the Income Tax provisions for the relevant previous year.
The purpose of Clause 18 is to ensure that the depreciation claimed by the assessee is in conformity with the legal framework prescribed under section 32. The tax auditor, while filling this clause, must adhere to the directions outlined in the sub-clauses, which comprehensively capture the details of assets, depreciation rates, and amounts claimed or allowable.
Depreciation under the Income Tax Act, 1961
Depreciation is a mechanism through which a taxpayer can claim a deduction on the cost of tangible and intangible assets used in the business or profession. Section 32 of the Income Tax Act lays down the rules and conditions under which depreciation is allowed. Depreciation is calculated on the basis of the written down value of the block of assets and is allowed only on assets that are owned, wholly or partly, and used for the purposes of business or profession during the relevant financial year.
The Act classifies assets into various blocks, and each block is assigned a rate of depreciation. The written down value method is used for calculating depreciation, except in certain specific cases. Intangible assets such as patents, trademarks, know-how, and copyrights are also eligible for depreciation under section 32(1)(ii).
Mandatory Nature of Depreciation Allowance
A significant legal clarification was introduced through Explanation 5 to section 32(1)(ii). This explanation provides that the depreciation allowance is mandatory and must be considered while computing total income, even if the assessee does not claim such deduction in their return of income. This eliminates any ambiguity regarding the entitlement of depreciation in the absence of a claim.
The introduction of Explanation 5 ensures that depreciation is automatically factored into the computation of total income, thereby standardizing the treatment across all taxpayers eligible for depreciation. It also serves as a safeguard against underreporting or overreporting taxable income due to non-claim of depreciation.
Applicability of Clause 18 to All Eligible Assessees
Clause 18 applies to all assessees who are eligible to claim depreciation under section 32. The clause does not differentiate between those who have claimed depreciation in their return and those who have not. This means that the auditor must furnish the details of allowable depreciation regardless of whether it was claimed in the computation of total income.
This comprehensive application makes Clause 18 a mandatory disclosure for all businesses or professionals owning depreciable assets. The scope extends to sole proprietors, partnership firms, companies, and all other persons who fall within the purview of section 44AB and are required to get their accounts audited.
Auditor’s Responsibility in Reporting Depreciation
The auditor’s responsibility under Clause 18 is to determine and report the amount of depreciation allowable to the assessee as per the Income Tax rules. However, it is important to note that the auditor is not required to verify whether the depreciation has been actually charged in the books of account. The clause is solely concerned with depreciation as computed under the Income Tax Act, which may differ from the depreciation recorded in the financial statements prepared under the Companies Act or accounting standards.
The auditor is also expected to ensure that the correct depreciation rates and block classifications are applied. Any mismatch in asset categorization or rate application must be rectified or suitably qualified in the audit report. Further, the auditor should verify the additions and deletions in the asset register to accurately compute the depreciation on each block.
Scope of Clause 18 vis-à-vis Clause 32(a)
Clause 18 must be distinguished from Clause 32(a) of Form 3CD, which deals with unabsorbed depreciation. While Clause 18 requires reporting of the depreciation allowable for the current year, Clause 32(a) relates to carried forward depreciation that could not be absorbed due to insufficient income in earlier years. This separation is critical for ensuring clarity in reporting and avoiding duplication of disclosures.
The auditor must therefore avoid including details of unabsorbed depreciation under Clause 18. Any unutilized depreciation brought forward from previous years must be reported exclusively under Clause 32(a). This demarcation helps in maintaining consistency in reporting and aligns with the legal framework under section 32(2), which permits the carry forward of unabsorbed depreciation indefinitely.
Disclosures Required Under Sub-clauses of Clause 18
Clause 18 is divided into multiple sub-clauses, namely (a) to (d), which collectively require a detailed presentation of the depreciation computation. These include:
- Description of each block of assets
- Opening written down value of the block
- Additions and deletions during the year with dates
- Depreciation allowable
- Closing written down value after depreciation
These sub-clauses ensure transparency in asset-level changes and the depreciation impact of each transaction. The dates of additions and deletions are particularly important since they influence the eligibility and quantum of depreciation. For instance, assets acquired and put to use for less than 180 days in a year are eligible for only half the applicable depreciation.
The auditor must cross-verify these details with the fixed asset register, purchase invoices, and sale deeds to ensure accuracy. Inaccurate or incomplete reporting can lead to discrepancies during scrutiny assessments or disallowance of depreciation claims by the tax authorities.
Treatment of Depreciation in Case of Mergers and Demergers
In scenarios involving mergers, demergers, or acquisitions, the computation of depreciation becomes complex due to the transfer of assets between entities. The transferred assets retain their original written down value in the hands of the transferee company. Clause 18 requires the auditor to factor in such transfers while determining the opening written down value and eligible depreciation.
The auditor must obtain and examine the scheme of arrangement approved by the appropriate authority to identify the effective date of asset transfer. The computation should reflect the merged or demerged assets in the respective blocks and apply the correct rate of depreciation as per the Act. Any discrepancies between the transferor’s and transferee’s asset values must be reconciled in the audit documentation.
Coordination with Accounting Depreciation and Tax Depreciation
While Clause 18 focuses solely on depreciation as per the Income Tax Act, the auditor must be aware of the differences between accounting depreciation and tax depreciation. Accounting depreciation is based on the useful life of assets as per the Companies Act and relevant accounting standards, whereas tax depreciation follows the block of assets approach and fixed rates prescribed under the Income Tax Rules.
These differences may result in temporary timing differences leading to deferred tax assets or liabilities. Though such deferred tax aspects are outside the scope of Clause 18, understanding these distinctions helps auditors explain differences between accounting profits and taxable income. However, the auditor must not confuse the depreciation claimed in financial statements with the depreciation allowable under the Act while filling Clause 18.
Legal Interpretations and Judicial Precedents
Over time, various courts and tribunals have interpreted the provisions of section 32 and the obligations arising under Clause 18. One of the key principles laid down is that the eligibility for depreciation arises from the ownership and usage of the asset for business purposes. Partial ownership or temporary non-use due to repairs does not deprive the assessee of the depreciation benefit.
Courts have also emphasized that once an asset is part of a block, individual identification of assets is not necessary unless the entire block ceases to exist. This principle simplifies reporting under Clause 18, as the focus remains on block-wise rather than asset-wise computation. The auditor must, however, ensure that the block has not been entirely sold off or scrapped, which would make the depreciation claim inadmissible.
Common Pitfalls in Reporting Under Clause 18
Tax auditors often face challenges in gathering complete asset information, especially in cases where the fixed asset register is not properly maintained. Missing purchase dates, unrecorded deletions, and incorrect block classifications are frequent issues that impact the accuracy of Clause 18 disclosures. Another common oversight is the incorrect application of depreciation rates, particularly when there have been changes in the rates notified by the government.
Additionally, when assets are purchased towards the end of the financial year, the auditor must confirm whether they were actually put to use before the year-end, as this determines the eligibility for full or half-rate depreciation. Relying solely on management representations without physical verification or documentary support can lead to audit qualifications or adverse remarks.
Overview of Depreciation Audit under Form 3CD
The process of auditing depreciation for the purposes of Clause 18 of Form 3CD involves a detailed examination of the fixed asset register, accounting records, and compliance with the provisions of section 32 of the Income Tax Act, 1961. Since depreciation is a non-cash expense that directly impacts the taxable income of the assessee, its correct computation and disclosure are critical in the audit report. The objective is to ensure that the depreciation claimed or allowable aligns with the legal and procedural requirements prescribed under the Act.
Depreciation audit is not limited to verification of amounts; it includes ensuring that assets fall into the correct block, the applicable rates are used, the usage conditions are met, and appropriate adjustments are made for additions and deletions during the year. These checks form an essential part of the overall audit approach for Clause 18.
Examination of Fixed Asset Register and Supporting Documentation
The starting point of the depreciation audit is the fixed asset register maintained by the assessee. This register should contain comprehensive details such as the description of each asset, date of acquisition, cost, location, and any subsequent changes due to additions, deletions, or improvements. The auditor must verify whether the register is updated and reconciled with the general ledger and financial statements.
For each asset addition during the year, the auditor must review purchase invoices, payment vouchers, and evidence of actual use. It is necessary to determine whether the asset was acquired and put to use during the relevant previous year. The term put to use is critical because, as per the Income Tax Act, an asset must be used for the purposes of business or profession to be eligible for depreciation.
In cases where assets were disposed of or retired, the auditor should examine the sale agreements, disposal records, or scrapping notes. The date and consideration received for such deletions affect the block of assets and the computation of written down value. Where entire blocks are sold off, the auditor must ensure that depreciation is not claimed incorrectly.
Understanding the Concept of Block of Assets
One of the key elements in tax depreciation is the concept of block of assets. Unlike accounting depreciation where each asset is depreciated separately, the Income Tax Act mandates depreciation on the basis of blocks. A block is defined as a group of assets falling within a class and attracting the same rate of depreciation. The assets are grouped into blocks such as buildings, plant and machinery, furniture and fittings, and intangible assets, with specified depreciation rates under the Income Tax Rules.
The block of assets approach simplifies depreciation computation but also creates complexity when assets are added or deleted during the year. The opening written down value is adjusted for additions and reduced by the value of deletions, and depreciation is allowed on the closing balance. The auditor must ensure that each transaction is correctly recorded in the relevant block and that the final depreciation amount is accurately calculated.
Relevance of the Date of Put to Use
An important condition for claiming depreciation under section 32 is that the asset must be put to use during the relevant previous year. If an asset is used for less than 180 days in a financial year, only 50 percent of the applicable depreciation is allowed. Therefore, the exact date on which the asset was first put to use becomes critical in determining the amount of depreciation.
Auditors are expected to obtain evidence supporting the date of use, such as delivery challans, installation certificates, or internal usage reports. Merely acquiring an asset does not make it eligible for depreciation. If the asset is ready for use but not actually put to use, depreciation is not allowable under the provisions of the Act. This distinction is often a source of contention during assessments and requires the auditor’s professional judgment based on available evidence.
Classification and Rate Verification
Each asset must be classified into the correct block with the applicable rate of depreciation as prescribed under Appendix I of the Income Tax Rules. The auditor must check whether the assessee has used the correct rate for each block. Rates are generally 40 percent, 15 percent, 10 percent, and 5 percent depending on the nature of the asset.
Over time, the government may revise depreciation rates through amendments to the Income Tax Rules. Auditors must stay updated with such changes and apply them appropriately for the assessment year under review. Misclassification of assets or use of outdated rates can lead to overstatement or understatement of depreciation, affecting taxable income and leading to future tax liabilities or penalties.
Additions and Deletions During the Year
Clause 18 requires detailed reporting of additions and deletions made during the previous year. For additions, the auditor must verify the acquisition cost, including incidental expenses directly attributable to bringing the asset to its working condition. In the case of self-constructed assets, all internal costs must be accounted for appropriately.
For deletions, the auditor must determine whether the asset was sold, discarded, demolished, or destroyed. The value at which the asset is removed from the block should correspond to the actual sale consideration or scrap value received. In case the entire block of assets ceases to exist, no depreciation can be claimed, and the difference between the sale value and the written down value becomes taxable under capital gains provisions.
The timing of addition or deletion is equally important. If an asset is added and put to use for less than 180 days, depreciation is restricted to 50 percent. Similarly, deletions made before the end of the year reduce the block, affecting the closing written down value and the depreciation computation.
Coordination with Other Clauses in Form 3CD
While Clause 18 deals specifically with depreciation allowable during the year, the auditor must also coordinate with disclosures under Clause 13, which relates to the method of accounting employed, and Clause 14, which pertains to valuation of closing stock. These clauses affect the overall computation of income and must be aligned with the depreciation figures reported under Clause 18.
Further, Clause 32(a) covers unabsorbed depreciation carried forward from earlier years. Auditors must ensure that there is no duplication or contradiction between the figures reported in Clause 18 and Clause 32. For example, if an asset was not put to use in a prior year and no depreciation was claimed, such unabsorbed depreciation may be carried forward, but it should not be confused with the current year’s claim under Clause 18.
Challenges in Auditing Depreciation
Several practical difficulties arise during the audit of depreciation. In many cases, assessees do not maintain an updated and reconciled fixed asset register. The lack of proper records complicates the identification of additions, deletions, and block-wise classification. Auditors must often rely on indirect documentation such as invoices, ledger entries, and management representations to perform their checks.
In group companies or entities undergoing restructuring, assets may be transferred between related parties. Auditors must examine whether such intra-group transfers have been made at book value or fair value and whether the depreciation treatment aligns with section 43(1) and related provisions. Incorrect valuation or lack of evidence may result in incorrect depreciation claims.
Another area of concern is the mismatch between accounting and tax depreciation. Companies may follow a different method or rate for preparing financial statements under the Companies Act and for computing tax depreciation. Auditors must clearly separate these and focus only on tax depreciation as per the Income Tax Rules while reporting under Clause 18.
Importance of Internal Controls and Physical Verification
The presence of effective internal controls over fixed assets strengthens the reliability of the depreciation computation. Controls should include proper authorization for asset purchases, periodic physical verification, and timely recording of asset movements. Auditors should assess the adequacy of such controls and consider performing test checks or physical inspections where material discrepancies are suspected.
Physical verification also serves as a means of identifying assets that are obsolete, idle, or not in use. While the Income Tax Act allows depreciation on assets held ready for use, the concept of passive use must be applied carefully. Assets lying unused for extended periods without justification may not qualify for depreciation, and auditors must evaluate such situations critically.
Considerations for Intangible Assets
Section 32 also allows depreciation on certain intangible assets such as goodwill, trademarks, copyrights, patents, and licenses. However, the eligibility and valuation of such assets are subject to interpretation and judicial pronouncements. In recent years, courts have debated whether self-generated goodwill or customer lists acquired during business combinations qualify for depreciation.
Auditors must review the basis of valuation of intangible assets and ensure that they are recognized in the books as per applicable accounting standards. Mere contractual rights or marketing relationships do not automatically qualify for depreciation unless they are capitalized as intangible assets. The rates of depreciation and classification must also be verified with reference to the rules notified under the Act.
Documentation and Working Papers
A well-documented depreciation audit ensures transparency and supports the auditor’s opinion in the tax audit report. The working papers should include details of:
- Asset register and block-wise classification
- Additions and deletions with supporting vouchers
- Computation of depreciation as per Income Tax Rules
- Verification of put to use dates and application of half-rate depreciation
- Reconciliation with accounting depreciation if applicable
These documents help establish the basis of audit conclusions and serve as evidence in the event of a scrutiny assessment or audit by tax authorities. Lack of adequate documentation may weaken the credibility of the auditor’s report and expose both the auditor and the assessee to compliance risks.
Importance of a Structured Checklist in Depreciation Audit
Depreciation, though non-cash in nature, plays a vital role in determining the taxable profits of a business. Clause 18 of Form 3CD demands accurate reporting of depreciation allowable under the provisions of section 32 of the Income Tax Act, 1961. Given its importance and complexity, a structured checklist becomes essential for tax auditors to ensure completeness, consistency, and correctness in audit reporting.
A well-prepared checklist allows the auditor to navigate through the fixed asset details, depreciation computations, block classifications, and reporting requirements efficiently. It also provides a systematic approach for ensuring that all legal provisions, procedural norms, and documentation standards are adhered to during the audit process. Errors or omissions in depreciation reporting can lead to tax disputes, penalties, and compliance failures, making the checklist not just a tool of convenience but a necessity for audit integrity.
Key Elements of an Effective Depreciation Checklist
The checklist for Clause 18 of Form 3CD must comprehensively cover the various audit tasks associated with depreciation. These include understanding the nature of assets, verifying ownership and usage, examining the block structure, confirming depreciation rates, identifying additions and deletions, and calculating the allowable amount of depreciation. A complete checklist would typically involve steps such as:
- Verifying the maintenance and completeness of the fixed asset register
- Ensuring proper classification of assets into prescribed blocks
- Checking the opening written down value of each block
- Reviewing supporting documents for asset additions and deletions
- Confirming the date and proof of asset being put to use
- Applying correct depreciation rates in line with Income Tax Rules
- Determining eligibility for half depreciation based on usage duration
- Ensuring the treatment of discarded or scrapped assets aligns with legal provisions
- Matching depreciation computations with disclosures in the audit report
Each of these steps corresponds to a specific audit objective and directly relates to compliance with the requirements of Clause 18. The checklist must also provide for documentation of findings, identification of discrepancies, and audit conclusions with supporting evidence.
Evaluating Ownership and Usage of Assets
One of the first checkpoints in the depreciation audit process is to establish that the assets are owned, wholly or partly, by the assessee and are used for the purposes of business or profession. Ownership must be backed by purchase invoices, title deeds, or other legal documentation. In case of jointly owned assets, the auditor must examine the terms of ownership and proportionate usage to determine the allowable depreciation.
The aspect of usage is equally important. Section 32 mandates that assets must be used during the previous year for depreciation to be admissible. Auditors must verify that the usage is business-related and not personal or capital in nature. Evidence such as utility bills, maintenance logs, and operational records may be relied upon to establish use. Where assets are temporarily not used due to repairs or maintenance, depreciation may still be allowed if they are held ready for use.
Block Classification and Rate Confirmation
Depreciation is computed on blocks of assets, not on individual assets. Hence, correct classification is fundamental. The auditor must confirm that assets are grouped appropriately into blocks such as buildings, furniture and fittings, plant and machinery, and intangible assets. Within each block, the applicable rate of depreciation as per the Income Tax Rules must be confirmed.
Rates may differ based on the nature of the asset and its usage. For example, computers and software attract a higher rate compared to general office equipment. Further distinctions may apply in the case of energy-saving devices, pollution control equipment, or motor vehicles used in specific businesses. The auditor must refer to the latest depreciation chart and confirm that the correct rates have been applied consistently.
In cases where the depreciation rates have changed during the year due to amendments in rules, the auditor must ensure that the revised rates have been implemented for the relevant period and reflected accurately in the computation.
Verification of Additions and Timing of Use
When new assets are acquired during the year, their inclusion in the block must be supported by valid documentation, such as supplier invoices, payment proofs, and delivery records. Additionally, the critical factor of the asset being put to use determines whether full or half depreciation is to be claimed. As per the provisions, if an asset is used for less than 180 days, only 50 percent of the applicable depreciation is allowable.
Auditors must verify the date on which the asset was actually put to use and not just the date of acquisition. This could include installation reports, commissioning certificates, or user logs. Without such evidence, full depreciation cannot be allowed, even if the asset was available for use. The auditor must also examine whether the addition is capital in nature and eligible under section 32.
Treatment of Deletions and Disposal of Assets
Deletions during the year must be reviewed to ensure that the correct sale consideration has been reduced from the block. The documentation may include sale invoices, buyer agreements, bank receipts, or disposal registers. If the entire block ceases to exist due to disposal of all assets, no depreciation can be claimed for that block.
Further, if the sale value exceeds the opening written down value of the block and no additions have been made during the year, the excess becomes taxable under the capital gains provisions. The auditor must verify these situations and ensure the correct tax treatment has been followed. Assets discarded or destroyed during the year should also be removed from the block with supporting documentation to avoid misstatement of depreciation.
Review of Asset Transfers and Business Reorganisations
In cases involving mergers, demergers, amalgamations, or hive-offs, asset transfers occur between entities. The transferred assets must retain their written down value and block identity in the hands of the transferee. The auditor must examine the scheme of arrangement, approval orders, and asset transfer documentation to determine whether depreciation is correctly computed post-transfer.
The auditor should also check if the transferee has taken over any unabsorbed depreciation from the transferor under section 72A or related provisions. In such cases, coordination between Clause 18 and Clause 32(a) becomes essential. Asset values must be carefully matched to avoid duplication or misrepresentation of depreciation.
Treatment of Intangible Assets and Special Cases
Depreciation is also allowable on specified intangible assets such as know-how, patents, copyrights, trademarks, and licenses. However, their valuation, recognition, and capitalization must be reviewed carefully. Only intangible assets that are legally acquired and capitalized in the books are eligible under section 32(1)(ii).
Auditors must confirm whether such assets are identifiable, controlled by the assessee, and expected to provide future economic benefits. In cases where goodwill has been acquired on acquisition of business, recent judicial developments must be referred to in determining eligibility for depreciation.
Special cases also arise in respect of leased assets, assets used in double shift or triple shift operations, and assets acquired under finance arrangements. These cases require specific analysis of facts and documentation to determine the correct treatment under the Income Tax Act.
Reconciliation with Books of Account and Financial Statements
While Clause 18 focuses solely on depreciation allowable under tax laws, a comparison with accounting depreciation helps in identifying differences and reconciling total depreciation figures. This is especially useful where companies maintain separate depreciation schedules for accounting and tax purposes.
The auditor must ensure that any depreciation recorded in the books but disallowed under tax law is added back in the computation of taxable income. Similarly, any depreciation allowable but not recorded in the books must be claimed in the return, as required by Explanation 5 to section 32(1)(ii).
The reconciliation must also consider changes in useful lives of assets, differences in methods such as straight-line versus written down value, and adjustments for impairment or revaluation, which are applicable under accounting standards but not for tax depreciation.
Disclosure and Reporting in Form 3CD
Clause 18 requires detailed reporting under sub-clauses (a) to (d). These sub-clauses capture the following information:
- Description of each block of assets
- Rate of depreciation applicable
- Opening written down value at the beginning of the year
- Additions or deletions with date and value
- Depreciation allowable for the year
- Closing written down value at the end of the year
The auditor must ensure that each disclosure is complete and consistent with the underlying documentation. The details must be presented in tabular format as per the Form 3CD schema and must align with the tax return filed by the assessee.
Where the auditor notices any discrepancies or irregularities, such as incorrect classification, unsupported additions, or misuse of depreciation benefits, these must be highlighted through qualifications or observations in the audit report. The auditor’s comments help the tax authorities in assessing the correctness of the depreciation claim and the overall return.
Audit Documentation and Working Papers
To support the reporting under Clause 18, auditors must maintain comprehensive working papers, which include:
- Asset-wise details of opening and closing balances
- Documents supporting additions and deletions
- Computation of depreciation for each block
- Evidence of use of assets
- Summary reconciliation with financial statements
- Extracts from depreciation schedules
- Internal memos and correspondence with management
These working papers form the audit trail and must be retained for future reference, especially in case of scrutiny assessments or appeals. The absence of proper documentation may weaken the audit conclusions and expose the auditor to professional risk.
Best Practices in Depreciation Audit
To ensure audit quality and compliance with Clause 18, the following best practices may be considered:
- Establish a standard checklist applicable to all clients
- Use automation tools or software to compute depreciation accurately
- Cross-verify physical verification reports with asset records
- Keep abreast of changes in depreciation rates or judicial rulings
- Clarify doubts with legal references or professional consultation where necessary
- Document the basis for critical judgments, such as date of use or classification
- Coordinate with management to correct inconsistencies before finalizing Form 3CD
These practices enhance audit efficiency and reduce the risk of reporting errors. A systematic approach to Clause 18 also helps in building trust with clients and demonstrating professional diligence.
Conclusion
Clause 18 of Form 3CD plays a critical role in ensuring accurate and compliant reporting of depreciation under the Income Tax Act, 1961. Through this series, we explored its legal foundations, practical audit considerations, and the importance of a detailed and methodical checklist to facilitate the work of tax auditors.
We examined the statutory provisions surrounding depreciation, focusing on section 32, Explanation 5, and how Clause 18 mandates disclosure regardless of whether the assessee has claimed depreciation in the computation of total income. The treatment of depreciation as a mandatory allowance reinforces the principle that taxable income must be computed consistently across all eligible assessees.
Addressed the practical aspects involved in auditing depreciation, including verification of the fixed asset register, classification into appropriate blocks, the significance of the date of put to use, and the application of correct depreciation rates. These areas require professional judgment and technical accuracy, especially in light of frequent changes in law and varying interpretations regarding asset usage, classification, and valuation.
Emphasized the utility of a structured checklist and outlined the specific steps auditors must take to fulfill their reporting obligations under Clause 18. From verifying ownership and usage to ensuring correct block classification, rate application, and reconciliation with books, every component plays a part in delivering a high-quality audit. We also addressed special cases such as mergers, intangible assets, and business reorganizations, which often complicate the depreciation audit process.
Overall, Clause 18 is not merely a disclosure requirement but a vital component in maintaining the integrity of tax computation and reporting. Accurate auditing of depreciation ensures that the income reported by assessees is neither understated nor overstated, promoting fairness and transparency in the tax ecosystem. For tax auditors, adhering to a disciplined approach backed by sound documentation and professional skepticism is essential in fulfilling their responsibilities under this clause.