India’s two primary audit watchdogs—the National Financial Reporting Authority (NFRA) and the Institute of Chartered Accountants of India (ICAI) are again at loggerheads over whether chartered accountant firms auditing a diversified company should also sign off on the audits of subsidiaries.
As a background, NFRA is the regulator for the quality of audits of companies . ICAI is the standard setter for the profession as well as responsible for the interests of the auditors.
As per Rule, if NFRA starts an investigation into a Company's audit, the ICAI must stop its own investigation.
The tension is about "Standard of Auditing (SA) 600." NFRA wants the Indian auditing standards to align with the global best practices, whereas ICAI has opposed it. Unsaid is the fear that the concentration of responsibility could take away the scope of work from the stand-alone audit firms.
As per media reports, both have decided on a temporary truce. They will not go public with their differences but work behind the scenes to reconcile their differences.
OUR VIEW:
The move to make auditors more responsible for the balance sheets they sign off on is definitely in the right direction. The Indian economy needs corporates whose numbers can provide confidence to the market, reduce risks and so bring in more investments in the financial markets. Both the regulators are needed in the system and if they coordinate to sort out their differences and work together, effectively producing better results - it would benefit both.
NFRA had recently been in the News for all the right reasons, covered extensively by our Regulatory News Summary. First, it was the NFRA Bill tabled in the winter session of Parliament, which proposes to give them more Functional and Financial autonomy. Next, it was the initiative by the agency to explore AI for better audit firm inspections. Better coordination with ICAI will strengthen the NFRA further in its work.
Link- https://economictimes.indiatimes.com/industry/services/consultancy-/-audit/nfra-icai-mull-mechanism-to-boost-regulatory-coordination/articleshow/129594811.cms?from=mdr
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