Wide differences have cropped up between the National Financial Reporting Authority (NFRA) and the Institute of Char- tered Accountants of India (ICAI) over a plan to revamp domesticau- dit 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 represen- tatives 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, bar- ring the state-run ones.
The institute fears the draft norms could “result in a concent- ration of audit work with a few lar- ge firms” and adversely impact most chartered accountant firms that comprise “small and medi- um” practitioners, senior indust- ry executives said.
The draft proposes to mandatori- ly make the principal auditor of a corporate group responsible for the entire group’s financial state- ments, they said.
This, ICAI reckons, gives adequ- ate power to the principal auditor- s-often belonging to large acco- unting firms to get component auditors, who are mainly from small and mid-sized ones, repla- ced with their own people by influ- encing the management. Compo- nent auditors usually conduct the audit of various subsidiaries of a corporate group.
A ICAI has also objected to another proposal to mandate the principal auditors to assess the professional competence of the component au- ditors. Under the extant norms, various such stipulations are ad- visory in nature and are, therefo- re, 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 un- listed public limited companies for professional lapses, while the ICAI has jurisdiction over the rest,
CAG, OTHERS BACK DRAFT NORMS
However, the office of the Comp- troller 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 do- mestic audit standards haven’t be- en upgraded in accordance with the revamped International Stan- dard 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’STAKE
For its part, NFRA believes that the revamp is a must to prevent corporate frauds and foster grea- ter accountability among audi- tors responsible for the financial statements of companies, based on which millions of retail inves tors put their money in stock mar kets, said people aware of the re- gulator’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.