The Institute of Chartered Accountants of India (ICAI) said auditors have to follow compliance requirements, but it is for regulator National Financial Reporting Authority (NFRA) to act on defaults by over a thousand auditors that the latter has flagged in a report recently.

ICAI president Nihar N. Jambusaria said his advice to chartered accountants was to comply with all mandatory requirements. “There is no doubt about this. Whenever we get data, we will act on it. We will look at it, but if it is a simple compliance requirement, NFRA itself will look at it,” Jambusaria said.

NFRA has named over a thousand statutory auditors—accounting for a large section of the audit profession in the country—who have not filed their annual returns for FY19 as of 28 September, painting a grim picture of the audit profession in India.

The statutory filing requirement in the NFRA-2 form is meant to capture a lot of fine details of the performance of an audit. It includes a firm’s registration, PAN number, details of fee received, details of partners and number of employees. It also covers disclosures on whether the firm has quit an audit assignment or withdrew its audit report or its consent to use its name in a report in the preceding three years. The auditor also has to state the quality control policies it has put in place for the reporting period. These details give the audit regulator a general understanding of the compliance level among the audited businesses and offer leads to instances in the corporate world that merit regulatory attention. If an auditor quits the audit assignment, it draws attention from the Registrars of Companies too.

However, these defaulting auditors can make good their lapses. “Default in filing annual returns by auditors is a compoundable offence,” said a person with knowledge of NFRA’s move. Compoundable offences are those in which the charges are dropped in return for the payment of a penalty.

An email sent to Competition Commission of India (CCI) chairperson Ashok Kumar Gupta who is holding the additional charge of NFRA, remained unanswered at the time of publishing.

The issue of auditor compliance comes when differences have surfaced between audit regulator NFRA and accounting rule maker and self-regulator of the profession ICAI over the audit of small companies. NFRA has asked ICAI to do a regulatory impact assessment of ICAI’s proposed accounting standard revision for small businesses, while ICAI says it has conducted the due process of consultations.

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