A review of annual reports of the listed Distribution Utilities for the year 2020 indicates that there appears to be none or very little consideration made of the legal or regulatory framework by the external auditors of the laws and regulations in an audit of the entity financial statements. In fact, some practitioners and even those involved in the audit of the DU financial statements appear to be ignorant about this audit requirement.
a. Rate-setting can constitute about 50 percent of the more significant risks in the audit of any DU. c. The Energy Regulatory Commission is short of people who are CPAs with experience in both the statutory and legal aspects of the regulation. The ERC Board is dominated by legal minds with majority having little experience in the industry and its regulation.
Under the above situations, the role of or participation by the external auditors is a very important component in attaining the objective of the Electric Power Industry Reform Act of 2001 to protect consumers. Apart from the ERC, the public can only rely on the external auditors to inform them of any impropriety, errors or wrong application of principles. The risk of significant misstatements in the financial statements of the DU can come from the revenue recognition process.