Income tax norms tightened, CAs complain of compliance burden

By: |
Updated: September 27, 2019 7:19:44 AM

Institute of Chartered Accountants of India (ICAI), the body regulating auditors before NFRA, will continue to regulate private and unlisted companies below this threshold.

Earlier this month, NFRA asked auditors to provide client information on fees received by auditor for statutory audit, tax audit, non-audit services and out-of-pocket expenses. Earlier this month, NFRA asked auditors to provide client information on fees received by auditor for statutory audit, tax audit, non-audit services and out-of-pocket expenses.

With the National Financial Reporting Authority (NFRA), the agency tasked with regulating auditors, tightening compliance norms by asking for more information on audits, auditors, fees recovered from clients, etc, chartered accounts (CAs) say the exercise is leading to duplication of roles and is resulting in unnecessary compliance burden.

Earlier this month, NFRA asked auditors to provide client information on fees received by auditor for statutory audit, tax audit, non-audit services and out-of-pocket expenses. The regulator also wants details of proceedings initiated against the auditor, details of resignation from any company or withdrawal of any audit report from past 3 years, among other information. This is to be provided in an annual form (NFRA-2) by November 30 every year.

Notified in 2018, NFRA monitors and enforces compliance on auditing and accounting standards, oversees quality of service and undertakes investigation of auditors with listed entities. Those unlisted entities with paid-up capital of up to Rs 500 crore or annual turnover of over Rs 1,000 crore as of March 31 of the last financial year will also be reviewed.

Institute of Chartered Accountants of India (ICAI), the body regulating auditors before NFRA, will continue to regulate private and unlisted companies below this threshold.

“NFRA is formed to clip ICAI’s powers. NFRA 2 is an extension of this philosophy. A simple reading of the form reveals that this is a humongous exercise of recording many minute details of each audit carried out by CA firms. Many disclosures required by auditors such as fees received from client, qualifications in audit report, etc, are in any case reported in annual reports of corporates,” says Subramaniam R Iyer, an independent CA.

He further said, “The form is extremely complex and requires lot of time and effort. It may also force audit firms to disclose internal matters, which is almost an invasion of privacy. The spirit of information should not be coercion or extreme pressure as the form in its present state suggests.

Auditing firm AMRG & Associates’ partner Rajat Mohan said, “Now every other regulator framed with the objective of governing a corporate body is trying to lynch on the power to penalise an auditor on flimsy grounds. NFRA’s detailed questionnaire seems unjust and excessive use of power. Unity of command principle needs to be followed in governance of an auditor otherwise it would unnecessary burden an auditor, which could hamper independence and objectivity.”

Responding to the charges, a senior government official said, “Auditors play an important role in markets as their opinion on a company’s financial position serves as an indicator of it’s performance. It helps investors identify a company’s worth. Although, identifying frauds is not an auditor’s responsibility, it is expected of them to be aware and make appropriate disclosures in financial statements to generate alerts for stakeholders. When this is not done, the government has to step in.”

NFRA has not been created to torment auditors, but aim is to ensure that investors are not taken for a ride. Even the PMO has been very clear in terms of dealing with financial frauds in the light of the IL&FS and PNB scams. In July 2018, even the PM had pointed out that only 25 rogue auditors faced action in over a decade with around 1,400 cases pending.

“World over over 50 countries have moved from self-regulatory professional accountant bodies and created independent audit regulators. In India, the move to set up a new oversight body for accounting and audit professions was approved by a parliamentary panel nearly eight years ago and due to protest from CAs, the issue was left hanging. It’s the government’s job to provide answers on the steps it is taking to control corruption and it is committed to do it,” he added.

Do you know What is Repo Linked Lending Rate (RLLR), Wholesale Price Index (WPI), Public Debt, Finance Commission Grants & Other Transfers, Economic Survey? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.