‘ICAI to soon finish financial statement review of 101 firms’
New Delhi, July 9, 2023
ICAI, on its own, or on a reference from a sectoral regulator, reviews financial statements of companies, including the auditor’s report, by its Financial Review Reporting Board (FRRB)
The Institute of Chartered Accountants of India (ICAI), which selected the financial statements of 101 companies for review in the 12 months to February 2023, will complete the process in a few months, said the chief of the accounting rule maker and audit self-regulator. The exercise will serve as a test of the robustness of statutory auditing at companies.
ICAI, on its own, or on a reference from a sectoral regulator, reviews financial statements of companies, including the auditor’s report, by its Financial Review Reporting Board (FRRB), president Aniket S. Talati said, explaining how it keeps a watch over audit compliance.
Where material violations by the auditor are noticed, the matter will be referred to ICAI’s disciplinary committee for initiating investigation and action against the auditor, Talati said in an email interview.
If auditors have blown the whistle about the affairs of a company, it is for the relevant regulator to take action against the management as ICAI’s jurisdiction is only over the auditors and its members, not over the company, Talati said.
“The process of ongoing reviews will take a few months to complete," he said. In the last 20 years, ICAI has done over 1,300 such reviews of financial statements.
"The Board has undertaken the review of Byju's (Think and Learn Private Ltd.) Standalone Financial Statements as a special case for FY 2020-21 and FY 2019-20. The review of the same is under process," the ICAI president said.
An email sent to Byju's on Sunday seeking comments about the FRRB review on Sunday remained unanswered.
“This review is done in three stages, initially by an independent reviewer and then by a group of experts before the findings are placed before FRRB, which also has members and representatives from multiple regulators, for deciding on action against members (auditors) in cases where gaps are found in the audit," said the president of ICAI.
In cases where non-compliances observed are not material and do not affect the true and fair view of the financial statements, the matter is brought to the attention of the auditor by way of an advisory, he said.
“In 697 cases, advisories have been issued to the auditor of the enterprise to make the preparers of financial statements aware of the non-compliances and also to exercise greater care in future while discharging professional duties. These advisories are also published regularly in the form of ‘study on compliance of financial reporting requirements’ to improve the overall financial reporting framework," Talati said.
The entities picked for a review of financial statements are part of a large universe. These include businesses whose equity or debt securities are listed or are in the process of listing on any stock exchange in India or abroad. Besides banks, co-operative banks and financial institutions, including insurers, businesses with a net worth of more than ₹250 crore in the preceding accounting year, and the holding or subsidiary entities of these businesses are also covered. Also, enterprises in the case of which information about non-compliance of accounting principles or disclosure requirements set by regulators or the law has come to light are also covered.
ICAI’s review of financial statements of businesses assumes significance as the review by audit regulator National Financial Reporting Authority (NFRA) covers only financial statements of companies with public interest as defined in NFRA rules, which include listed and large unlisted public limited companies and financial institutions in addition to companies referred to it by the government or other regulators. NFRA’s mandate does not cover large private limited companies if not referred to it by any other authority.
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