{"id":143977,"date":"2021-10-29T20:18:41","date_gmt":"2021-10-29T14:48:41","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=143977"},"modified":"2021-10-29T20:18:41","modified_gmt":"2021-10-29T14:48:41","slug":"who-is-my-regulator-on-rbis-recent-actions-against-auditors","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/who-is-my-regulator-on-rbis-recent-actions-against-auditors\/","title":{"rendered":"Who is my regulator?: On RBI’s recent actions against auditors"},"content":{"rendered":"\n

Synopsis<\/strong>: RBI’s recent actions against auditors highlight the need for role clarity as well as coordination among regulators<\/p>\n

Introduction<\/strong><\/h5>\n

Recently, the RBI had issued an order debarring a firm of chartered accountants from undertaking any type of audit assignment in any RBI regulated entity for a period of two years.<\/p>\n

This action has been taken, on account of the failure of the audit firm to comply with a specific direction issued by the RBI.<\/p>\n

The direction was related to its statutory audit of a systemically important non-banking financial company.<\/p>\n

Similarly, in the past, SEBI has also banned a CA firm for their involvement in the accounting scam in a large listed company. These orders are now in appeal before the Supreme Court (SC).<\/p>\n

What are the roles and responsibilities of Institute of Chartered Accountants of India (ICAI)?<\/strong><\/h5>\n

Objective<\/strong>: The Institute of Chartered Accountants of India (ICAI) is a body established by The Chartered Accountants Act, 1949, for regulating the profession of chartered accountancy.<\/p>\n

Composition<\/strong>: The ICAI is managed by a council of 40 members of whom 32 are elected by chartered accountants and the remaining eight are nominated by various public authorities.<\/p>\n

Core functions of the ICAI<\/strong>:<\/p>\n

– Regulating the profession of accountancy,<\/p>\n

– Formulation of accounting standards<\/p>\n

– Prescription of standard auditing procedures<\/p>\n

– Disciplining and taking action on misconduct by auditors<\/p>\n

The ICAI, like other regulators of \u201cprofessions\u201d, is thus structured as a self-regulatory organisation (SRO).<\/p>\n

While ICAI has the power to Discipline and take action on misconduct by auditors, why RBI and SEBI needs to intervene?<\/strong><\/h5>\n

Over the years, ICAI\u2019s<\/strong> record in disciplining errant members has not been noteworthy. As a consequence, there has been a growing tendency among sectoral regulators to discipline the auditors.<\/p>\n

Why National Financial Reporting Authority (NFRA) was constituted?<\/strong><\/h5>\n

In the wake of some large corporate accounting and auditing scandals in the late 1990s, many OECD countries established bodies to oversee the audits of public companies.<\/p>\n

This was aimed to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports.<\/p>\n

In line with this global development, the National Financial Reporting Authority (NFRA<\/strong>) was constituted by the Government of India on October 1, 2018, under the new Companies Act<\/strong> of 2013.<\/p>\n

What are the powers given to National Financial Reporting Authority (NFRA)?<\/strong><\/h5>\n

Broadly, the NFRA has the power to<\/p>\n

– Monitor and enforce compliance with accounting and auditing standards,<\/p>\n

– Oversee the quality of service<\/p>\n

– Undertake investigation of the auditors of a class of companies.<\/p>\n

These include companies whose securities are listed on any stock exchange in India or outside. Large unlisted public companies with a paid-up capital or annual turnover or debt above prescribed thresholds, all insurance & banking companies are within the NFRA\u2019s jurisdiction.<\/p>\n

For the balance class of companies, the ICAI continues to be the regulator of the profession.<\/p>\n

How the accounting and auditing fraternity responded after the constitution of NFRA?<\/strong><\/p>\n

It was unhappy with the dilution of its self-regulatory role. In November 2018, the Northern India CA Federation had challenged the constitutional validity of powers given to the NFRA. A similar petition has been filed by another CA which is pending before the Madras High Court.<\/p>\n

What is the way forward?<\/strong><\/h5>\n

The present situation offers an opportunity to put in place a clear regulatory framework and machinery for the conduct of the accounting and auditing profession.<\/p>\n

First<\/strong><\/em>, If the twin regulatory model continues, this should ideally be in one consolidated legislation with clarity on the respective roles of ICAI and NFRA.<\/p>\n

Second<\/em>,<\/strong> the disciplining arm of the ICAI will need to be restructured and strengthened to improve its effectiveness and credibility.<\/p>\n

Third<\/strong><\/em>, both ICAI and NFRA have representatives of sectoral regulators on their key decision-making bodies. These will need to be fully energised to become robust mechanisms for sectoral inputs as well as operational regulatory coordination and co-operation.<\/p>\n

Finally<\/strong><\/em>, as the economy becomes more complex, India will need to strengthen the regulatory frameworks in other similar cross-cutting domains like data protection and competition.<\/p>\n

Source<\/strong>: This post is based on the following articles \u201cWho is my regulator?<\/strong> \u201c published in Business Standard<\/strong> on 29th Oct<\/strong> 2021<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Synopsis: RBI’s recent actions against auditors highlight the need for role clarity as well as coordination among regulators Introduction Recently, the RBI had issued an order debarring a firm of chartered accountants from undertaking any type of audit assignment in any RBI regulated entity for a period of two years. This action has been taken,… Continue reading Who is my regulator?: On RBI’s recent actions against auditors<\/span><\/a><\/p>\n","protected":false},"author":10316,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216],"class_list":["post-143977","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704707831},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/143977","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10316"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=143977"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/143977\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=143977"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=143977"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=143977"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}