Two of India’s top audit regulators have buried their differences over a proposal to relax the statutory audit requirement of small businesses, following a change of guard at the helm of both institutions.
Last September, the Institute of Chartered Accountants of India (ICAI) opposed a consultation paper from the National Financial Reporting Authority (NFRA) proposing to ease the statutory audit requirement for small businesses. While ICAI is India’s accounting rule maker and self-regulator of auditors, NFRA is the audit watchdog set up by the government.
ICAI president Debashis Mitra said in an interview that the two bodies now work in a complementary manner, indicating the end of sharp differences over the framework of statutory audit and the tension between the two institutions.
“We work in a complementary manner. We respect the NFRA just as I would also like to think the NFRA respects ICAI. Today we are not on a collision course. We are on the same page on the issue of audit quality. We both believe the audit quality needs to be very high,” Mitra said in the interview.
Both institutions have held talks over key audit matters and regularly exchange views, a government official said on condition of anonymity. An email sent to NFRA on Tuesday seeking comments for the story remained unanswered till press time.
In March, former finance secretary Ajay Bhushan Pandey took over as chairperson of NFRA after the term of the watchdog’s first chairperson, Rangachari Sridharan, ended last year. Under Sridharan’s watch, NFRA sought public comments on the audit framework for small businesses, which met with resistance from ICAI. ICAI, too, has a new president, as the term of the accounting rule maker is limited to one year.
The NFRA consultation paper sought comments on whether or not small and medium firms need to be given relaxation on statutory audit requirements and what should be the threshold. ICAI then pointed out that NFRA has no jurisdiction over small businesses to decide whether or not they need to be audited.
“That was a consultative paper by NFRA. ICAI took the stand that we were never consulted. We also said NFRA does not deal with these kinds of companies as it deals with public interest entities. Subsequent to that, I think we have not heard anything on that, neither from NFRA nor from the government,” Mitra said.
That consultation paper gave details of how small firms get their audit done. NFRA’s preliminary analysis then showed that the fees paid to auditors by a large majority of micro, small and medium companies were way below what an audit, when performed in compliance with the letter and spirit of the standards of auditing, would require. The watchdog then said it was appropriate to revisit the requirement of compulsory statutory audit for all companies.