MCA Looks Forward to Reinforce Audit Reporting Standards

Highlights

  1. The MCA plans to offer changes to the Companies Auditor’s Report Order (CARO). The proposal will make a move as soon as the next government comes into power
  2. Ministry of Corporate Affairs (MCA) looks all set to reinforce audit reporting standards, after several number of corporate frauds reported
  3. The MCA is also seeking to operationalise National Financing Reporting Authority (NFRA). The NFRA will monitor oversight of audits of large corporations

Ministry of Corporate Affairs (MCA) looks all set to reinforce audit reporting standards, after several number of corporate frauds reported recently and role of auditors has been a big concern assisting these kind of frauds.

The MCA plans to offer changes to the Companies Auditor’s Report Order (CARO). The proposal will make a move as soon as the next government comes into power. A government official is said to be told “We will further strengthen the Companies (Auditor’s Report) Order. We will make it even sharper.”

This move has come at a time when several questions have been asked regarding the role of auditors in number of financial scams which have been unearthed.

Particularly, ever after Infrastructure Leasing and Financial Services and its auditors came under the radar for the loan repayment defaults.

One of the officials from the MCA is reported to be told that existing standards are good enough and auditors would not be permitted to use the fact of a revision of rules as an excuse for incautious audit reporting under existing standards. The auditing standards that were last revised in 2016, explains the disclosures that auditors must reveal while filing auditor’s reports.

CARO is applicable on large sized companies in India other than financial and charitable institutions. The last update on CARO rules was that managerial remuneration and related party transactions to be mentioned in the auditor’s report.

Experts say CARO has come a long way and is on par with international standards. However, it could possibly take advantage by inclusion of further evaluations by auditors of the company’s status rather than several smaller disclosures.

Dinesh Kanabar, CEO of Dhruva Advisors mentioned “CARO should include, whether the company in the view of the auditor is a going concern or not. Is there something in the accounts of the company which can impact its ability to be a going concern? The auditor would then have to do a test and justify why he reached a conclusion that the company continues to be a going concern”

The MCA is also seeking to operationalise National Financing Reporting Authority (NFRA). The NFRA will monitor oversight of audits of large corporations including listed companies from the Institute of Chartered Accountants of India.

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Important Link:

  1. Ministry of Corporate Affairs plans to tighten audit reporting standards

Also Read:

  1. Government likely to ban Deloitte for Alleged Malpractice in IL&FS Accounts
  2. NCLAT Authorizes Banks to Reveal Defaulting IL&FS Accounts as NPAs
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