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