NEW DELHI: Seeking to further improve quality, the chartered accountants’ body ICAI’s Financial Reporting Review Board (FRRB) has introduced new parameters of low audit fees and negative reserves for reviewing the financials of companies.
FRRB conducts the review of financial statements of companies to assess compliance with Accounting Standards, Standards on Auditing, Schedule II and III of the Companies Act, 2013, among others. It also assesses compliance with various guidance notes on accounting and auditing, and master circulars/directions issued by the Reserve Bank of India (RBI).
‘High levered’, ‘negative reserves’, ‘low audit fees’ and ‘companies under Insolvency Resolution Process (IRP)’ are new parameters that are in place now for FRRB for carrying out the review of companies’ financials, according to a senior ICAI functionary.
FRRB is using these parameters, along with other factors, in the review of financial statements for 2023-24.
The functionary said that all the parameters are being looked at typically from a quality perspective and clarified that an auditor is free to take low audit fees.
“We are not actually looking at the audit fees, we are looking at the quality... the audit fee is a basis for selection... we will check that even if the audit fee is low and the qualitative parameters, which the board sees with respect to compliance of the standards, have been met, then it is fine,” the functionary noted.
Regarding IRP being considered as a parameter, the functionary said that if an auditor did not mention issues in the preceding year and suddenly, the company concerned goes into insolvency, then FRRB will look at whether there have been any audit quality issues.
Till September 30 this year, FRRB has considered and finalised 1,307 cases and out of them, in 813 cases, advisories were issued to auditors for major non-compliances, as per data shared by the Institute of Chartered Accountants of India (ICAI).
As many as 183 or 16 per cent of the total cases were referred by FRRB to various regulators, including the Sebi, RBI and Irdai.
Also, FRRB sent 35 reports on the financial statements of political parties to the Election Commission of India (ECI), the data showed.
FRRB has a three-tier review mechanism. In the first level, a chartered accountant called a technical reviewer will go through the financials of the company concerned and in the second level, a group of five chartered accountants will do the review. In the last level, FRRB does the review and decides on further action.