National Financial Regulatory Authority (NFRA) disagrees with Institute of Chartered Accountants of India (ICAI) over whether the latter has the authority to determine whether small businesses need to be audited.
ICAI regulates chartered accountants and is administered by the Ministry of Corporate Affairs. In contrast, the NFRA was established under the Companies Act to recommend and enforce accounting and auditing policies and standards.
A regulatory impact assessment of certain proposed changes to the Indian Accounting Standards was recommended by NFRA in accordance with this administrative structure. Micro, small, and medium-sized companies were extensively consulted throughout the country for the preparation of this approach paper.
Following the study and approach paper, the regulatory authority made specific recommendations:
- According to the NFRA, most companies subject to regulatory impacts and audits are private, have minimal turnover, and have low indebtedness.
- Therefore, it recommended that ICAI reconsider accounting standards’ structure, form, and contents for such companies.
- According to the NFRA, standards should align with:
- Nature
- Size
- Complexity
- Commercial needs,
- Business size and
- Capacity to comply with the prescribed standards
The ICAI, however, saw things differently. According to the ICAI, despite a company’s size or affordability, a detailed audit reduces the risk of corporate governance lapses, contrary to the NFRA’s recommendation.
According to the ICAI, when examining the NFRA’s authority over micro, small, and medium companies, it cited its preliminary analysis of key financial parameters of the companies and said that most MSMCs pay auditors far less than what an audit should cost, when conducted in accordance with the standards on auditing icai.
ICAI, the accounting regulator, disagrees with National Financial Regulatory Authority (NFRA), the regulator of audits, over whether NFRA has the authority to decide whether small businesses should be audited.
ICAI regulates chartered accountants and is administered by the Ministry of Corporate Affairs. In contrast, the NFRA was established under the Companies Act to recommend and enforce accounting and auditing policies and standards.
Following this administrative structure, NFRA recommended that the ICAI conduct a regulatory impact assessment of certain proposed revisions to the existing Indian Accounting Standards. In order to develop this approach paper, we consulted with primary stakeholders from micro, small, and medium businesses across the country.
Following the study and approach paper, the regulatory authority made specific recommendations:
- According to the NFRA, most companies subject to regulatory impacts and audits are private, have minimal turnover, and have low indebtedness.
- For such companies, ICAI should reconsider its accounting standards’ structure, form, and contents.
- According to the NFRA, the standards should be aligned with:
- Nature of
- The size.
- Complexity
- Commercial needs,
- Business size and
- Capacity to comply with the prescribed standards
The ICAI, however, had a different view. In contrast to the recommendation made by NFRA, ICAI argued that detailed audits of companies, regardless of their size and affordability, can mitigate corporate governance risks.
According to the ICAI, when examining the NFRA’s authority over micro, small, and medium companies, it cited its preliminary analysis of key financial parameters of the companies and said that most MSMCs pay auditors far less than what an audit should cost, when conducted in accordance with the standards of auditing.
Thus, MSMCs are not subject to the jurisdiction of the NFRA.
The ICAI has suggested a single platform for regulatory reporting so that the same information does not need to be filed with multiple regulators at the same time.
In order to prevent the need for the same information to be reported to multiple regulators, the ICAI has proposed the introduction of a single regulatory reporting platform.
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