ICAI has expressed it’s concerns over sensitive issues, like ‘NFRA Consultation Paper on Review of Audit Requirement in the case of MSMCs’, returning of ‘ICAI’s Approach Paper 2020 on Revision of Existing Accounting Standards’ by NFRA. The chain of events suggests that some sort of ICAI vs. NFRA is going on, which is visible from the information available in the public domain, attributable to both the bodies, first released by NFRA and then by ICAI.
ICAI has expressed concerns over one-sided non-consultative obstinate approach of National Financial Reporting Authority (NFRA), affecting the interest of CA profession/ Nation. ICAI has reiterated that Policy parlance has never intended ICAI and NFRA to be competing entities in each other’s domain, to tangentially intersect and infringe upon the powers of each other. In view of the fact that the objective of both ICAI and NFRA is to promote public good, it is important that the two Organisations discuss and deliberate on respective mandate and work in a cohesive manner so as to work towards Nation Building.
ICAI is of the view that no new framework/ procedures, process of conduct of audit should be inferred which the Legislature never intended. Therefore, the NFRA should not suggest/ prescribe measures in the name of improvement of audit quality, including exemption from Statutory Audit, changes in the audit processes, quality control, and audit reports. ICAI is hopeful that both will be able to work together for common objective of promoting quality financial reporting.
ICAI has clearly communicated that the Consultation Paper issued by NFRA is outside its functional authority. It is not within its purview to propose whether an audit of a particular class is required or not. Also, the statement that Statutory Audit has no role to play in case of companies having Net worth less than INR 250 crores is without any research. Further, ICAI is of the view that removal of requirement of Statutory Audit from such companies, which are substantial in numbers, will only devastate the Corporate Governance framework and consequently, will hugely impact the economy and the nation adversely. Therefore, the provisions relating to mandatory statutory audit under the Companies Act, 2013 should remain the same and there should not arise any question of not having Statutory Audit as it is the backbone of Financial Reporting Chain.
ICAI has proposed that NFRA should deliberate on the Revised approach paper again and the Consultation Paper on Statutory Audit and Auditing Standards for MSMCs be withdrawn.
Also ICAI has requested that NFRA should not prefer talking through Media for communication and has expressed hope that both will work with more collaborative approach for improvement of quality of financial reporting in the country.
ICAI Letter to NFRA dt. 22/10/2021: ICAI shares Concerns over NFRA Consultation Paper on Review of Audit Requirement, etc. issues
Related Posts:
NFRA’s Consultation Paper on Review of Statutory Audit Requirement for MSMCs
NFRA Comments on ICAI’s Regulatory Impact Assessment (RIA) for revision of Accounting Standards
As per news reports (ET), the NFRA is in the process to revise its proposal. Now NFRA is working on a fresh analysis of earlier proposal (consultation paper) of audit exemption for small companies with net worth upto Rs. 250 crores. NFRA may float a revised draft report/ consultation paper soon. NFRA has started a fresh round of discussion with ICAI on the conflicting issues/ interests of the proposal. NFRA is likely to deliberate on turnover criteria in place of net worth criteria, so that big firms can’t take advantage of regulatory oversight.
However, the fact remains… who is rightly empowered to do all these reviews? should it be done by ICAI or NFRA? In any case, who will be responsible for any regulatory mess that may be created by implementation of such proposals without any backing of research/ mature ideas? Those who are dealing in such proposals should keep in mind that exemption from Audit will open many doors for other loopholes, for which the Regulators should first think of developing requisite control mechanism. Last but not the least, ICAI vs. NFRA must stop in the best interests of the Profession and the Country.
Agreed with NFRA views to exempt small Companies from Statutory Audit based on Turnover threshold limits. With the advancement and application of IT systems in today’s business and financial affairs of the Company, the risk of financial frauds has been nullified. Statutory Audit of small Companies are just seen as a compliance requirement only and it does not make any value addition to the Companies. I think it’s high time that reform is required in Statutory Audit of Companies under Companies Act 2013.