Ministry Of Corporate Affairs Mandates National Financial Reporting Authority To Review Standards For Auditors

The National Financial Reporting Authority (NFRA) has been given a mandate by the Ministry of Corporate Affairs (MCA) to review Auditing and Assurance Standards for auditors.

While the standards themselves will be framed by the Institute of Chartered Accountants of India (ICAI), it will be the National Financial Reporting Authority’s job to review these standards as well as recommendations once ready and send these to the MCA for its final approval.

These measures are being taken to tighten rules for audit firms offering non-audit services to their client firms, subsidiaries as well as related companies, in the wake of the recent fraud at Infrastructure Leasing & Financial Services (IL&FS).

Among the few options which the government is working on, one option is to extend the negative list of non-audit services that auditors can provide in India. The second option being considered is to put a cap on the revenue generated through non-audit services as a percentage of audit services.

The third option under consideration is to impose a total ban on non-audit services which auditors can offer to clients, its associates and subsidiaries.

According to the Companies Act, 2013, statutory auditors are barred from offering their clients eight services which include internal audit, actuarial services as well as investment banking.

However, they are allowed to provide tax audit services, secretarial services, advice on mergers and acquisitions as well as transfer pricing related services.

The government would like to prevent a situation where there is no IL&FS style conflict of interest where it was found that audit firms had offered non-audit services through other companies in their network.

The government plans to ensure that all checks and balances of corporate governance function effectively as well as converge with the best international practices.