Under scrutiny

Auditors need to be reined in, but not through over-regulation

The Reserve Bank of India (RBI) recently announced that it was tightening rules for statutory audits of banks and that it would take action against auditors if they were found responsible for any lapses in financial statements or audit reports of banks. This is only one of several recent developments that have led to auditors in particular, and accountants in general, becoming wary about misstatements in corporate accounts. The establishment of the National Financial Reporting Authority (NFRA) was cleared by the Cabinet in March. This will be the first independent regulator to oversee the accounting profession, which has never been answerable to any regulatory body other than the Institute of Chartered Accountants of India (ICAI). While the ICAI remains the arbiter of accounting standards and will play a valuable advisory role, the NFRA gains its authority from Section 132 of the Companies Act, 2013. The new regulator would oversee the audits of large companies, listed and unlisted. The government could also refer cases for investigation to it, in the public interest. The NFRA is to be formally established within the next two months and the rules have been notified. The regulator would have the powers to penalise any individual CA or any audit firm. It can levy fines of up to 10 times the fee received, and also debar firms from practising.

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