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NEW DELHI : The Institute of Chartered Accountants of India’s (ICAI) objection to exempting small firms from statutory audits is aimed at ensuring good governance, ICAI president Nihar N. Jambusaria said in an interview. It has nothing to do with protecting the interests of chartered accountants in landing jobs, he added.

ICAI’s differences with National Financial Reporting Authority (NFRA) on audit of firms with sales of up to 250 crore came to the fore when NFRA asked ICAI to conduct an impact assessment of accounting standard revisions proposed for such companies. In response, the ICAI brought out a consultation paper seeking comments on whether small and medium firms should enjoy a relaxation on statutory audit requirements and, if so, what should be the threshold.

Jambusaria said that ICAI’s objection to exempt such firms from mandatory audits was not to ensure job opportunities for charted accountants. “The world is changing. There are many other new avenues opening up (for chartered accountants). The major question is whether in India we have a conducive situation where we can avoid audit of an entity that has limited liability," he said.

There have been instances of companies vanishing after taking public deposits and, in the absence of audit, wrongdoers may get away by window dressing their books, he added. “Serious lapses will come out only if audit is done. It is a good, preventive check. If we exempt small businesses from audit, who will monitor them? That is the major question. It is not a question of protecting someone’s income by asking somebody else to incur an expenditure," said Jambusaria.

ICAI on Sunday issued a statement saying that NFRA does not have jurisdiction over micro, small and medium companies. “It is not within its purview to propose whether audit of a particular class of companies is required or not. However, we may look at merits in having audits of these companies," ICAI said.

“Audit is considered as one of the pillars of the effective corporate Governance system in companies, as it also helps in mitigating the risk of failure in implementation of corporate governance. Therefore, preparation of financial statements and their audit, need to be regulated through law," the statement said, adding that the purpose of an independent audit is to provide confidence to the stakeholders of audited financial statements in the quality of financial reports, in particular, their reliability.

Last month, the government had asked ICAI to do an impact assessment of the accounting standard revision ICAI had proposed for small companies. The ministry of corporate then said quoting NFRA that most of the companies to which ICAI’s revised accounting standards will apply are private limited companies, many of which are of very small net worth or turnover or indebtedness or a combination of these. Public interest in the General Purpose Financial Statements (GPFS-es) of these companies would most likely be minimal, the ministry had noted.

Emails sent to the ministry and to Competition Commission of India Chairperson Ashok Kumar Gupta who currently holds the additional charge of NFRA remained unanswered at the time of publishing.

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