The National Financial Reporting Authority (NFRA) should be provided with powers to publish audit inspection results, which will act as an effective deterrence tool for better compliance by auditors of public companies, says an expert panel report.
The Committee of Experts, consisting of three government officials, was set up in April by the Corporate Affairs Ministry following directions from the Supreme Court in a case regarding multinational accounting firms.
The panel's recommendations on 'Regulating Audit Firms and the Networks' was submitted last month to the ministry.
While observing that setting up of the NFRA creates no inconsistency between the Companies Act, 2013 and the Chartered Accountants Act, 1949, the report said the body has been structured on the lines of international best practices followed by other independent audit regulators in advanced jurisdictions.
The view also comes at a time when chartered accountants' body ICAI has been voicing its opposition to the establishment of the NFRA.
The NFRA would regulate auditors of only listed companies, and public companies beyond a certain threshold while the Institute of Chartered Accountants of India (ICAI) would continue to regulate the auditors of public companies below a certain threshold and private companies.
The panel has recommended that the NFRA could be further strengthened and the rules being formulated must provide it with powers to publish audit inspection results, subject to necessary checks and balances.
"This will strengthen NFRA further and will provide an effective tool of deterrence for better compliance by the auditors of public companies with the applicable laws and professional standards," it said in the 217-page report, that includes annexures.
As per the panel, independent audit regulators in other jurisdictions have been empowered to publish the results of audit inspection.
Noting that globally there has been a growing acceptance of independent audit regulators, the committee said the creation of the NFRA is a positive development.
"While NFRA as an audit regulator has been vested with necessary powers, drawing inferences from global best practices may help in creating a more robust regulator," it added.
Consultancy Grant Thornton India LLP's CEO Vishesh C Chandiok said the committee's recommendations, if implemented as suggested, would improve audit quality, financial reporting and in the process ease of doing business in the country.
"Activation of the independent regulator NFRA, formation of multi-disciplinary partnerships, activation of global brands for audit, including marketing and business promotion, transparency on non- audit service fees, are all steps aligned with the direction progressive countries in the world have already moved towards...," he noted.
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