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.
https://economictimes.indiatimes.com/industry/services/consultancy-/-audit/nfra-icai-mull-mechanism-to-boost-regulatory-coordination/articleshow/129594811.cms?from=mdr
