India Inc raises concern over joint audit proposal
October 12, 2022
Mumbai India Inc. has sent representations to the Ministry of Corporate Affairs highlighting the flaws in the proposed rules for joint audit. In a series of representations reviewed by Mint, the companies said the new rules would only increase compliance costs, but may not improve the quality of audits.
“Critical areas are likely to fall between the cracks, which can be detrimental to audit quality and thus thwart the achievement of desired objectives,” he argued.
In March, the Company Law Committee recommended joint audits for certain categories of companies to improve quality. As per the proposal, more than one firm will be mandated to scrutinize the financial statements of a company before signing them.
Public sector companies and lenders had earlier made it mandatory for financial institutions with higher balance sheets to adopt a joint audit by the Reserve Bank of India (RBI) in 2021. 15,000 crores. Joint audit is not mandatory for private companies under the Companies Act, 2013.
The committee had argued that the joint audit is likely to bring in greater transparency, improve quality and reduce auditor concentration as it would be difficult for the company management to influence more than one auditor, who is not able to exercise his mind independently. will be able to
However, India Inc, through lobbies from the Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry, said that instead of reducing audit risks, the move would increase the risk, as each auditor would be able to audit certain parts of the company. Will see Financials, and cannot conduct full independent audits.
“Our interactions with some of the companies with joint auditors have shown that they do not see any benefits and, instead, there are concerns about risks, as no joint auditor oversees the entire audit. CII “It also has an impact on the cost, time and effort undertaken by a company for its financial audit,” it said in its representation.
If both the auditors conduct full audit, the proposed rules will provide higher assurance to the users of financial statements, CII said. CII and FICCI also urged the ministry to consider the January 2017 report of the Chawla Committee.
The report concluded that joint audits impose unnecessary costs on firms, increase rather than reduce audit risks, and do not encourage resource- and expertise-sharing that could benefit smaller firms. Referring to international practice, the report concluded that “joint audit is on the decline as most countries that had such audit mandates discontinued it. I discontinued it, as the process was costly and ineffective.
According to the International Federation of Accountants, joint audits are required or permitted in 55 countries. France is the only major jurisdiction to have mandatory joint audits for both listed and large unlisted firms starting in 1966, and since 1984 for all companies that prepare consolidated financial statements. However, this is not the first time the proposal is being considered. In 2003, it was proposed by a group under the Institute of Chartered Accountants in India, but it was shelved due to implementation issues. Incidentally, ICAI has given in writing that it supports this proposal.