In a move aimed at ushering in more transparency in sharing audit reports of companies, the government is looking at implementing some of the practices followed in the US. The case of IL&FS has so rattled the establishment that it does not want such a thing repeated at any cost. In the latest move, an Economic Times report says that the government is looking at a new format in which the auditors will fill in their comments and observations on the company’s accounts that they have audited and submit it straight to the National Financial Reporting Authority (NFRA).
The government, particularly the Department of Company Affairs feels that it was the company’s auditors, which included KPMG, were responsible for the fiasco at the NBFC. In fact, the department has initiated action against the auditors for having failed in their duty to flag the distress signals from earlier years as well as in colluding with the management in withholding information on some of the bad debts IL&FS was carrying.
For the record, a company, whether listed or unlisted, will fall within the jurisdiction of NFRA if it has a paid-up capital of Rs 500 crore or more or if its turnover exceeds Rs 1,000 crore or if it has loans, debentures and deposits exceeding Rs 500 crore. Besides these, all banking, insurance and power companies will also be part of this exercise by the NFRA.
The broad mandate given to NFRA includes “oversight, establishment and enforcement of accounting and auditing standards and the quality of service of auditors”. Now, some of these were being handled by the Institute of Chartered Accountants of India.
It is to the NFRA that the auditors of the companies will be sending this new form. The objective is to highlight any anomalies in a separate report though it may form part of the auditors’ report attached to the balance sheet.
The practice followed in the US is the auditors submit an annual report on the companies whose books they have audited as well as disclosures on any action initiated against any of the audit firm’s members. It is learnt that Indian government may wish to introduce similar practices here as well.