June 2019

CHANGING RISK LANDSCAPE FOR AUDIT PROFESSION, WITH SPECIAL EMPHASIS ON NFRA AND OTHER RECENT DEVELOPMENTS

Anmol Purohit and Janhavi Pandit
BCAJ team

Mr. N.P. Sarda, Past President of the ICAI and a well-known teacher to many in the profession, delivered a remarkable speech at the BCAS on 9th January, 2019. BCAJ received requests from many members to publish some of the key points of that talk. We are publishing this summary just in time before the audit season for unlisted entities commences. A summary cannot convey the full import of his presentation but we hope this piece will enable the professionals to get a birdís-eye view of the changing landscape of the audit profession. We would recommend that you also watch the two-hour-long talk on the BCAS You Tube channel.

 

In the last couple of years, the frequency and scale of frauds revealed to stakeholders and the public at large has been astonishing. Many would have thought that post-Satyam scandal lessons were learnt and proper governance practices put in place. However, with irregularities at Punjab National Bank (PNB), Infrastructure Leasing & Financial Services (IL&FS), amongst others, coming to the fore, the burning questions about loopholes in the system, accountability, risk management, etc., are again up for debate in the corporate world.

 

In the aftermath of the scams, the National Financial Reporting Authority (NFRA) was formed to tighten the regulatory aspects and monitor the quality of audit. This led to issues such as overriding powers of the NFRA over the ICAI, questioning auditors about the professional work, etc. In this article, we provide various aspects of this development, the issues therein and their impact. The following broad headings cover the key aspects dwelt upon by Mr. Sarda.

 

INCREASING RISKS AND CHALLENGES

Economic and regulatory changes are taking place at a rapid pace. We have witnessed substantive reforms, viz., the Companies Act, 2013, Ind AS and Auditing standards that are aligned with International frameworks, Income Computation and Disclosure Standards and Corporate Governance requirements to enhance transparency and certainty. In the wake of these developments across various regulations and rising incidents of frauds, the risks and challenges in auditing are also increasing. This is on account of the following:

 

  •   Increasing size and spread of business entities and groups (locations,  subsidiaries, geographies, SPVs, number of transactions, frauds

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