Cost of audit may go up by 25%: Subodh Kumar Agrawal
With the country going for a new company law after over 50 years, the accounting regulator Institute of Chartered Accountants of India (ICAI) has its hands full while embracing the change. In an interaction with Namrata Acharya and Sudipto Dey, ICAI President Subodh Kumar Agrawal shares his assessment of the impact of the new Act on the audit business and the profession. Edited excerpts:What is your assessment of the new Companies Act in terms of responsibilities and liabilities for the auditing community?
Till date, only accounting standards were given legal backing by the law and the auditing standards were not within the ambit of the law. As per the new Act, both accounting and auditing standards are part of the law. The government will announce both accounting and auditing standards and any addendum in consultation with the new regulatory authority (National Financial Reporting Authority or NFRA). The impact is that auditing, which was a matter of opinion and judgement of the independent auditor will come under the monitor and supervision of NFRA. This requires consultative deliberations and thought process for facilitating smooth transition.Is there anything in the new Act to ensure that NSEL or Satyam-like frauds don't happen?
Systems are in place. If somebody colluded and fraud happens, then chances (of fraud) are always there. In the new Companies Act, emphasis is on governance and better compliance. Both the old and new Acts take care of these kind of situations.What is the progress of your investigation in the NSEL case?
We are collecting data from FT and NSEL. We will find out if there is any role of auditors and we will submit the report as soon as possible.Given the mandatory auditor rotation policy, could this be a game changer for Indian audit firms, especially the small and medium sized ones?
Rotation of auditors could bring about a change in the mindset of the auditee and the auditor. The auditors also have to equip themselves to move from one client to another.The rotation policy will help attract freshers into the profession.
This is also a professional opportunity for small and medium sized audit firms. But only the fittest will survive.But are the auditors equipped to embrace the change?
Our auditors are fully equipped to handle the change, as our CA education system is such that it provides both theoretical, and practical training. Not only this, during their professional tenure, the auditors develop value judgment capacity too which is a part of the new Act. The new Act highlights trust on the auditors, and with trust comes a certain level of responsibility. With the heightened focus on ethics and good governance in the conduct of businesses, there is now greater expectation from the stakeholders with respect to information and assurance on the governance practices in the businesses. The auditors now have to be very careful in defining the extent of their role, responsibilities in the matters of attestation and giving reports or certificates.
In addition, wherever required, we will provide additional guidance to the auditors. We have also planned a capacity building drive in a major way for our members.There have been allegations of auditors sharing a cozy relationship with clients. Do you see that changing? This is a myth. The so-called allegations are due to the vast expectation gaps. It was a misconception that an auditor is a part/party to management and improper to claim that they enjoy cozy relationships. Now rotation, to an extent, will dispel the wrong notion of cozy or gory relationships.
Anyway, auditors were always expected to work with independence and integrity in the best interest of investors and other stakeholders.From a company's perspective, will the cost of audit go up?
I find audit fee, if you compare with other fees (that companies pay) is very less. Even if it goes up by 15-25 per cent (there is) nothing wrong in that. The new Companies Act will have a positive impact in the longer run on the business and corporate environment. It will help in the growth of Indian corporates.Many see the creation of NFRA as an encroachment in the jurisdiction of ICAI. What are your views? There is no question of encroachment. The NFRA will be one of the regulators or one of the wings of the regulator. So we do not see any conflict. Yes, certain power has been given to NFRA. The rules of NFRA are yet to be made public. So once they are in the public domain, we will be able to comment on it. But if you see, the National Advisory Committee on Accounting Standards is already there for accounting standards. Auditing standard was with us, but under the new Companies Act it will be regulated by the NFRA.
It should be borne in mind that a single authority cannot usurp the powers of all other investigating authorities. Though NFRA may be on the lines of the Public Company Accounting Oversight Board model as in the US, one must realise that the US and India vary in terms of regulating the accounting profession. We have to see how the structure and rules are proposed. Once we complete the internal evaluation of the entire set of the rules, we will come out with suggestions.Will the new Act help reinforce foreign investors' confidence in Indian economy?
The focus of the new Act is on corporate governance. This will bring a radical change in the working and overall governance of companies, with a positive impact on the business environment.http://www.business-standard.com/article/opinion/cost-of-audit-may-go-up-by-25-subodh-kumar-agrawal-113092900687_1.html