Report of the ‘Quality Review Board (QRB)’ on ‘Audit Quality’ for Review period 2015-16; Latest report is based on 102 cases reviewed by the QRB after its last report and upto August 2016
Under Sec. 28A of the Chartered Accountants Act, 1949 (as amended in 2006), the Central Government has constituted the ‘Quality Review Board (QRB)‘ consisting of a Chairperson (nominated by Central Govt.) and 10 Members (5 members nominated by each of ICAI and Central Govt.), from amongst the persons of eminence having experience in the field of law, economics, business, finance or accountancy. QRB currently being the sole body statutorily mandated to perform audit quality review function of various entities in India in the public interest, is vigorously continuing its independent review of statutory audit services of the audit firms auditing accounts of top listed and other public interest entities in India. Since August 2012, the Board has selected a total of 454 review assignments for review of statutory audits of 349 companies/entities, being public interest entities in India. These entities from various industries selected for review represent more than 75% market cap of the stocks listed on the National Stock Exchange (NSE, world’s 12th largest stock exchange with an overall market capitalization of US$1.65 trillion as of January, 2015) and Bombay Stock Exchange (BSE, world’s 11th largest stock exchange with an overall market capitalization of US $1.7 trillion as of January, 2015). Total of 249 Audit firms registered with the ICAI were selected for review of audit quality of these selected audit file/s. Since then, the Board has finalised a total of 257 review reports while reviewing audits of top listed and other public interest entities in India.
Based upon these 257 review reports, 28 cases have been recommended to the ICAI Council for consideration in terms of the requirements of Section 28B(a) of the Chartered Accountants Act, 1949 and in 136 cases appropriate advisories were issued by the Board to the concerned Audit firms for improvement in audit quality in terms of the requirements of Section 28B(c) of the Chartered Accountants Act, 1949. Out of the 28 cases recommended to the ICAI Council, it has decided to refer 6 cases to the Disciplinary Committee for initiating disciplinary proceedings; issue appropriate advisory to the concerned Audit firms in 18 cases; and close cases. One case is under consideration of the ICAI Council. Out of the total 257 review reports completed so far by the QRB, findings of 155 review reports were presented in the earlier Report of the QRB. Subsequently, 102 reviews have been completed till August, 2016. In this report, the QRB has included key findings, analysis and summary of observations made by the Reviewers in those 102 review reports.
Review mechanism of the QRB has been administered as per best international practices based upon a detailed analysis of the inspection systems of the audit regulators around the world. During the financial year 2015-16, the QRB took various initiatives. In line with the international best practices, the QRB decided to adopt risk based approach for selection of audit engagements consisting of various listed and other top public interest entities for initiating their audit quality reviews. After detailed analysis, a comprehensive reporting format was specified for the Technical Reviewers. Further, QRB has been continuously guiding its Reviewers in terms of their role and responsibilities and how they should structure their review emphasizing upon compliance of technical standards, ethical standards, relevant laws and regulations and other aspects. QRB has also planned to undertake root cause analysis of the deficiencies identified during review and also plan to take various other measures to disseminate the review findings amongst various stakeholders. The vast majority of Audit firms have reacted responsibly by taking actions to improve compliance and overall audit quality.