The angst in ICAI over an audit regulation move

The Institute of Chartered Accountants of India (ICAI), which regulates CAs and frames accounting rules, on Wednesday said the audit regulator National Financial Reporting Authority (NFRA) cannot decide whether small businesses should be audited or not.

The roots of the displeasure arise from accounting standard changes for small companies prepared by ICAI and sent to NFRA.

NFRA last month sent back ICAI’s proposals and asked the latter to conduct an assessment of the impact if the changes were implemented. Subsequently, NFRA also brought out a consultation paper seeking comments on whether small and medium companies need to be given relaxation on statutory audit and what should be the threshold.

On Wednesday, ICAI president Nihar N. Jambusaria told chartered accountants at an online event that his agency had begun work on revising accounting standards in 2006. He said ICAI’s approach paper was approved by a body of government and independent experts, and a lot of effort went into the revision of 18 accounting standards for five years, for which due process of consultation took place.

Jambusaria alleged that the revised accounting standards were not brought up for discussion at the NFRA board meeting in September, where part-time members were also present. Mint has seen a recording of Jambusaria’s message to chartered accountants.

While ICAI is a statutory body for regulating the profession of chartered accountancy and is under administrative control of the ministry of corporate affairs, NFRA was set up under the Companies Act to recommend accounting and auditing policies and standards to the government and to enforce compliance of accounting and auditing standards.

The government last Thursday gave a temporary charge of NFRA to Competition Commission of India chairperson Ashok Kumar Gupta after the three-year term of its first chairperson, Rangachari Sridharan, ended in September.

“An appropriate reply is being drafted, and the revised accounting standards are being sent back to NFRA for its consideration again," Jambusaria said.

“Even this statement that micro, small and medium firms should be subject to audit only if they satisfy certain public interest entity criteria cannot be regarded as the view of NFRA. This view was never brought for discussion at the NFRA board. NFRA does not have jurisdiction over micro, small and medium companies," he said.

Jambusaria’s comment refers to NFRA’s proposal that smaller companies need to be audited only if they satisfy certain “public interest entity criteria".

As per the Companies Act 2013 and NFRA rules, it is not within the purview of NFRA to recommend whether the audit of certain firm is required, Jambusaria said. “We would like to have good coordination with NFRA for which discussions will be held with them. It was done in the past, and we will continue to have channels of discussions open with NFRA," he said.

Emails sent to the ministry of corporate affairs and Ashok Kumar Gupta remained unanswered till press time.