It’s a watershed year not only for the government in its efforts to clean up the economy, but also for the Quality Review Board (QRB)—which was established under the Chartered Accountants Act of 1949—as it completes its first decade.
A ‘quality audit’ is achieved when the auditor’s opinion on financial statements can be relied upon. With a view to improving the quality of audit services in the country, the central government constituted the QRB in 2007, as an independent body to review the quality of services rendered by chartered accountants in the country—its review process contributes towards an increasingly robust and transparent financial reporting system.
The role of chartered accountants in nation building was highlighted by Prime Minister Narendra Modi during his speech on the 68th Chartered Accountants’ Day (July 1, 2017). They have been recognised as important stakeholders in government’s endeavour towards a transparent economy.
Shell companies and other companies suppressing revenue and indulging in fudging of accounts are some of the vehicles contaminating the economy. To stop these malpractices, a quality audit is imperative.
QRB also guides chartered accountants to improve the quality of services and adherence to various statutory and other regulatory requirements. It is a robust set-up, where the central government nominates the chairperson and five members. Members are nominated from amongst the persons of eminence, having experience in the field of law, economics, business, finance or accountancy. The current Board, for example, has senior representatives from the ministry of corporate affairs, ministry of law & justice, CAG and market regulator Sebi. The Institute of Chartered Accountants of India (ICAI) also nominates five members. In fact, majority of members of QRB are independent of the profession.
Since FY13, QRB has formalised a distinct and strong system of independent review of statutory audit services of the firms auditing the accounts of top listed and other public interest entities in India.
QRB’s reviews involve assessment of the work of statutory auditors while carrying out their statutory audit function, so QRB is able to assess (1) the quality of audit and reporting by statutory auditors, and (2) the quality control framework adopted by audit firms in conducting audit.
The major focus of the reviews is on compliance with technical standards, relevant laws and regulations, quality of reporting and a firm’s quality control framework.
Since FY13, QRB has selected 585 review assignments for review of statutory audits of 443 top listed and other public interest entities. QRB has selected about 300 firms who had performed these audits, for conducting their reviews according to a set procedure and time-line. The selected entities range from various industries/sectors, and represent more than 85% market cap of the stocks listed on the NSE and BSE.
Since FY13, based on 331 completed reviews, 29 cases have been recommended to the ICAI Council for consideration and further action, including disciplinary action, and in 181 cases appropriate advisories have been issued by QRB to the concerned audit firms, highlighting their shortcomings and advising them towards improvement in the quality of their services.
Clearly, the review mechanism is a strong deterrent to errant audit practices. A large number of audit firms have reacted responsibly by taking action to improve compliance and overall audit quality.
Not just in India but internationally also QRB has initiated dialogue for cooperation with the International Forum of Independent Audit Regulators (IFIAR) as well as independent audit regulators of many countries.
Reinforcing market confidence through audit reliability and increasing audit transparency are key challenges today. We have reasons to believe that the audit quality review conducted by QRB will usher in greater reliability and transparency, and increase confidence in audits in the country.
Parvinder Sohi Behuria, IRS (Retired); Chairperson, QRB