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Wide differences have cropped up between the National Financial Reporting Authority (NFRA) and the Institute of Chartered Accountants of India (ICAI) over a plan to revamp domestic audit standards in sync with global norms, multiple people aware of the development told ET.
In a meeting of the NFRA board on Monday, senior ICAI representatives are learnt to have raised concerns over the former’s draft norms to overhaul the extant Standard on Auditing (SA) 600, which will be applicable to only listed companies and banks, barring the state-run ones.
The institute fears the draft norms could “result in a concentration of audit work with a few large firms” and adversely impact most chartered accountant firms that comprise “small and medium” practitioners, senior industry executives said.
The draft proposes to mandatorily make the principal auditor of a corporate group responsible for the entire group’s financial statements, they said.
This, ICAI reckons, gives adequate power to the principal auditors-often belonging to large accounting firms-to get component auditors, who are mainly from small and mid-sized ones, replaced with their own people by influencing the management. Component auditors usually conduct the audit of various subsidiaries of a corporate group.
ICAI has also objected to another proposal to mandate the principal auditors to assess the professional competence of the component auditors. Under the extant norms, various such stipulations are advisory in nature and are, therefore, not strictly followed.
Emails sent to ICAI and NFRA didn’t elicit any response until the time the paper went to press.
NFRA has regulatory power over auditors of all listed and large unlisted public limited companies for professional lapses, while the ICAI has jurisdiction over the rest.
CAG, others back draft norms
However, the office of the Comptroller and Auditor General (CAG) and regulators, such as RBI and Sebi, whose officials are also part of the NFRA board, have endorsed the audit watchdog’s draft norms, ET has learnt.
Since its roll out in 2002, the domestic audit standards haven’t been upgraded in accordance with the revamped International Standard on Auditing (ISA) 600. NFRA, which has been holding meetings for months to revise the standard, will soon release a formal draft for stakeholders’ comments.
NFRA’s take
For its part, NFRA believes that the revamp is a must to prevent corporate frauds and foster greater accountability among auditors responsible for the financial statements of companies, based on which millions of retail investors put their money in stock markets, said people aware of the regulator’s thinking. So, greater public interest overrides any other issue, said the people. Also, the new norms would apply only to listed firms, barring the state-run ones.
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