/ Audit

Govt Specify Large Audits Eligibility Standards for Quality 

AUDIT Rules by Govt

Govt will specify Large Audits Eligibility rules/ Standards for Quality 

  • Govt is considering whether to limit audits of big companies & Public-interest entities to companies of a specific size, reputation, and technological prowess.
  • While at an early stage, discussions in this regard are centred on a graded approach to addressing the issue or risk of inadequate audit standards endangering investor interests.
  • Among the ideas under consideration is establishing eligibility rules for audit firms that oversee the financial accounts of large publicly traded corporations, such as a threshold size.
  • A number of instances have emerged in recent months in which companies with large public floats have their accounts audited by tiny, unknown audit firms, increasing concerns among investors about the quality of their reports.
  • The most famous example is the Hindenberg Research report, which revealed that the independent auditor for Adani Enterprises and Adani Total Gas “hardly seems capable of complex audit work

President, ICAI (Aniket Talati) view on newly enacted regulations

Audits Eligibility

In accordance to the sources, the scenario is still in its earliest phases and will require additional discussion.

  • “The issue is being investigated in light of recent concerns about the (small) size of some audit firms and their capacity to handle large audits.” But smaller auditors continue to be at a disadvantage when compared to the Big Four firms,” said a source close to the development, adding that most large companies continue to use the network firms of the Big Fours.
  • More deliberation will also be required before a final decision can be made, according to the source, who added that the interests of smaller auditing firms must also be considered.
  • According to the Hindenburg study, the independent auditor for the two Adani enterprises is a small firm called Shah Dhandharia, which seems to have no active website.
  • Furthermore, historical website documents show that it had only four partners and 11 employees. Similar difficulties arose when financial irregularities at the former Punjab and Maharashtra Cooperative Bank (PMC Bank) were discovered, and questions were raised about its auditors.
  • Audit quality is of paramount significant & rather than size of the Chartered accountants firm, reported by the Aniket Talati, president, ICAI. He had told recently that “At the Institute of Chartered Accountants of India is India’s, believe mainly quality is of main significant & essential rather than only large or larger firms are can do it better, I think it will not do justice to any profession, not just CA,
  • The latest step by the Govt comes as auditors of 1,000 large Public listed companies in India are required to publish transparency reports with the NFRA in a certain format starting with the current fiscal year.
  • The newly enacted regulations are expected to boost auditor credibility and investor confidence. Audited organizations & their shareholders will learn about audit firms’ management, ownership structure, governance, and internal policy frameworks.

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