India Inc must embrace global audit practices in a connected economy: NFRA chief
- National Financial Reporting Authority wants lead auditors of business groups to be “ultimately responsible and accountable” for their consolidated financial statements even if subsidiaries are audited by other auditors, according to a proposal it released for public feedback on 17 September.
New Delhi: Businesses and finance professionals cannot shy away from global best practices in accounting and auditing when the nation aspires to be a super power and it is only a matter of time India becomes the world's third-largest economy, National Financial Reporting Authority (NFRA) chairperson Ajay Bhushan Pandey said on Thursday, pitching for greater integration with the global norms on auditing financial statements of companies.
Pandey’s appeal not to cling on to some of the local audit norms comes in the context of differences of opinion between NFRA and the Institute of Chartered Accountants of India (ICAI), the self-regulator of chartered accountants that helps the government in preparing accounting and audit standards, on the adoption of a global norm for auditing financial statements of conglomerates.
NFRA wants lead auditors of business groups to be “ultimately responsible and accountable” for their consolidated financial statements even if subsidiaries or branches are audited by other auditors, according to a proposal it released for public feedback on 17 September.
Also Read | Lead auditor responsible, accountable for consolidated financial statements: NFRA proposal
However, ICAI subsequently called for a pause in the revision of standard of audit (SA) 600 “to allow for a comprehensive review and discussion with all relevant stakeholders to ensure that any changes are in the best interest of the profession and public.”
NFRA seeks to plug regulatory gap
The NFRA proposal to revise SA 600, which deals with auditing group financial statements, seeks to plug a regulatory gap that had allowed business groups to get away with fund diversions through subsidiaries. The existing standard set by the ICAI allows a parent company’s auditor to rely on the work of a subsidiary’s auditor without being held responsible for it, subject to safeguards. NFRA's investigation of audit failures cites this as an area of weakness in the regulatory regime that needs to be addressed.
Also Read: India audit penalties are among the world's lowest. This could change
Pandey said that when pathbreaking initiatives are undertaken, there may be some doubts in the minds of people, but perceived notion of some pain, which in many cases may not be there at all, should not deter those initiatives.
Referring to the unified payments interface (UPI) system and India’s digital public infrastructure, Pandey said, “What was started as a financial inclusion programme has led to the financial empowerment of the entire population.” The NFRA chief was addressing chartered accountants, auditors and company executives at a conference organised by industry body Assocham in the national capital.
One has to be careful about insisting on local solutions, arguing that India is different from the rest of the world, he said. “If we are going to become a global power, then can you afford to say that we are unique and therefore we will not integrate with the rest of the world?” Pandey said.
He also said that it is the collective responsibility of company managements, independent directors, statutory auditors, shareholders and the regulator to work in the direction of creating trust and improving corporate governance.
Also Read: Audit quality is a bigger concern than market concentration
Ashok Haldia, chairman of Assocham’s task force on accounting standards, sustainability accounting and integrated financial reporting, said that mere financial literacy was not enough for a position on the board of directors of a company or on its audit committee.
He said that there was need for guidance on how audit committees in companies need to monitor audit quality indicators, and that the role of chief financial officers (CFOs) was crucial.
“CFOs cannot take a plea that they sign the financial statements because they've been asked by the board to do so. They may be occupied with many other responsibilities--could be the risk, the cyber security or raising of resources… It needs to be emphasised that the prime responsibility of the CFO is ensuring the quality of financial reporting and the issues related to that. If that's not possible, then possibly, the time has come for large companies to employ a chief accounts officer or a chief financial reporting officer in addition to the CFO,” said Haldia.
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First Published:17 Oct 2024, 08:27 PM IST
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