Top firms back NFRA’s new group audit rules
New Delhi/Ahmedabad, Oct 28, 2024
Regulator proposes to raise lead auditor accountability to ensure quality
The National Financial Reporting Authority’s (NFRA) board will soon consider enforcing tighter norms for statutory audits of conglomerates, two people aware of the development said, a move that has received support from some of the top audit and consulting firms.
The period for receiving public feedback ends this month and the NFRA’s 12-member board is expected to meet soon after, said one of the people seeking anonymity. It will consider the proposal for making the auditor of a holding firm of business groups responsible for consolidated financial statements even if subsidiary accounts are signed by other auditors.
“Implementation will be based on the decision of NFRA’s board, which comprises representatives of Sebi, RBI, Comptroller and Auditor General of India and two independent members. The board’s decision will be notified,” said the person.
NFRA is set to go ahead with the changes even as audit profession’s self-regulator, the Institute of Chartered Accountants of India (ICAI), had called for a “pause” on harmonizing domestic audit norms for group companies with the global practices to allow for “a comprehensive review and discussion with all relevant stakeholders”.
NFRA has offered a carve-out for audit of certain businesses from the proposed norms so that small auditors’ concerns over larger audit firms increasing their market share are addressed.
BSR& Co. LLP., PwC in India, Grant Thornton Bharat and another leading audit firm, which did not wish to be named, supported NFRA’s tighter norms.
“BSR & Co LLP believes that alignment with the global standards is a step in the right direction for audit quality,” the firm told Mint about NFRA’s proposed amendments to SA600, the audit standard dealing with group financial statements. “Any changes should allow for education and transition for the audit profession.”
While BSR has a contractual arrangement with KPMG to share certain methodology, tools, software and training, it is an independent firm.
The amendments seek to fix gaps in the current regime of audit of business groups which the regulator has said are “severely deficient” as the lead auditor of holding firm was seen placing a “mechanical reliance” on auditors of subsidiaries. NFRA said in some group audit cases it investigated, there were signs of siphoning funds using promoter-led subsidiaries.
Sanjeev Krishan, chairperson, PwC in India, said with the proposed changes,
Grant Thornton Bharat, said it has always supported regulatory initiatives that aim at enhancing audit quality. “As indicated by trends in regulatory findings, SA600 was clearly in need of alignment with the international standards and we are glad to see the proposal in that direction, albeit in a staggered manner. It is encouraging to see the regulators presenting their rationale for the proposed changes, including their consideration of apprehensions related to the alignment.”
NFRA’s proposed change applies to public interest entities under the regulator, barring state-owned companies, banks, insurers and respective branches. “We do believe the proposal will work toward bringing in global best practices in group audits with clarity in the role of principal auditor, enhanced transparency in component reporting and essentially enhancing trust in financial reporting," said Chandiok. The principal auditor oversees the holding company, while components refer to its subsidiaries
Queries emailed to the NFRA, ICAI and SRBC & Co. Llp., a leading audit firm, on 23 October seeking comments remained unanswered at the time of publishing.
NFRA aims to adopt best global accounting and auditing standards to ensure Indian practices align with international standards. “This initiative, coupled with proper training and appropriate transition time, will foster investor confidence and create trust among stakeholders,” Krishnan said. “It will help establish an enabling framework that supports sustainable economic growth while upholding highest standards of accountability, positioning India as a leader in financial governance.”
[Mint]
