The new norms proposed by the Securities and Exchange Board of India's (Sebi) corporate governance panel for auditors has strengthened the case for the establishment of an independent auditor as mooted by the government. The Parliamentary Standing Committee on Finance had in 2012 specified the need for a quasi-regulatory body for supervising audit quality. This would in the form of a National Financial Reporting Authority (NFRA) provided for in Section 132 of the Companies Act, 2013 for matters relating to accounting and auditing. However, earlier this year, the Veerappa Moily-headed Standing Committee on Finance had said it was not in favour of a separate regulator for auditors. The Institute of Chartered Accountants of India (ICAI) is a statutory body that regulates chartered accountants in India. The body had recently come under fire from Prime Minister Narendra Modi after his criticism of the body's disciplinary record. Among other things, the Sebi's panel has recommended that the Quality Review Board (QRB) be strengthened to meet the independence criteria laid down by the International Forum of Independent Audit Regulators (IFIAR), an international body that comprises independent audit regulators from 52 jurisdictions. India is not yet a member of IFIAR but ICAI has maintained that QRB has applied for IFIAR membership. The first QRB was set up by the government in 2007. Five of its members are nominated by the ICAI Council and five by the government. The panels want QRB to be provided requisite financial resources as well as staffed with adequate full-time personnel to carry on its mandate. "Steps should be taken for the further operational independence of QRB such as providing infrastructural support by the government," the panel recommendation states. "The proposed changes directionally point towards setting up of an independent audit regulator, which would be aligned to global practices," said a senior official of a large consultancy firm. It could not be ascertained if the government planned to put the establishment of the NFRA on the front-burner again or if ICAI had taken up the matter afresh with the former.
An email sent to ICAI in this regard went unanswered.The Sebi panel has also batted for enhancing SEBI's powers to act against auditors and third-party fiduciaries with statutory duties under securities law subject to appropriate safeguards. It has pointed out that Sebi does not have the power to impose penal powers in relation to auditors. "This power ought to extend to act against the impugned individual(s), as well as against the firm in question with respect to their functions concerning listed entities. This power should be provided in case of gross negligence as well, and not just in case of fraud/connivance," the panel noted. Notably, the ICAI has expressed its dissent on the above recommendation to avoid jurisdictional conflict and other issues as the regulation of chartered accountants are covered under the Chartered Accountants Act, 1949. "The Committee's recommendations highlight the need to strengthen various oversight mechanisms relating to auditors of listed companies to provide confidence to shareholders and other stakeholders. In this regard, the Committee has essentially focussed on the existing oversight bodies and steps to be taken to strengthen these mechanisms so as to meet the overall objective," said Sai Venkateshwaran, partner and head - Accounting Advisory Services at KPMG in India. New Recommendations
- The Sebi panel has also recommended that the Quality Review Board be strengthened
- This is to meet the criteria laid down by the International Forum of Independent Audit Regulators. India is not a member
- Five of the 10 QRB members are nominated by the ICAI Council and five by the government
- The panel wants QRB to be provided requisite financial resources and full-time personnel for its mandate
- The panel also batted for enhancing Sebi’s powers to act against auditors and third-party fiduciaries with statutory duties under securities law, subject to safeguards
- It has noted Sebi lacks the power to impose penalties on auditors