Form supervisory board of outside experts: NFRA’s TAC Chief to audit firms

K R Srivats New Delhi | Updated on October 26, 2021

TAC Chief says it mustn't just be a tick-the-box formality   -  Getty Images/iStockphoto

Also recommends firms publish annual report of activities including statement of revenues and expenses

Audit firms in India should publish an annual report of professional activities that they undertake and also establish a supervisory board of outside experts to evaluate the audit quality of their work and strengthen their functioning.

These two measures, if implemented, will go long way in improving transparency in their functioning and boost public trust in them, R Narayanswamy, Chairman of NFRA’s Technical Advisory Committee recommended on Tuesday.

Detail out revenues

Narayanswamy said that this annual report should detail out the revenues from audit as well as the non audit fees received by the firm. Non audit fees received disproportionately higher than audit fees has been a big debate for reform the world over including India as this trend tended to affect the independence of auditors.

Also see: Road to disciplining erring auditors is bumpy

He urged the Big Four audit firms to take the lead on this front. These two measures — annual report and appointing a supervisory board — should be genuine and not one of tick the box approach, he added.

Narayanswamy, who was addressing a NFRA webinar, spoke on the theme ‘Strengthening Audit Firms Culture’. He made it clear that even small audit firms should go ahead and set up a supervisory board of outside experts to guide them and strengthen their functioning.

Small firms need help

“Small firms do need help… precisely for the reason that they are small… They need help. More so given that many small audit firms are essentially family owned and are conflicted,” he added.

Also see: Need to improve quality, depth of audit: RBI Governor Shaktikanta Das

He also said that audit firms could rope in past partners to form part of the supervisory board or bring in audit experts from around the world for this purpose.

Narayanswamy highlighted that a critical attribute of good audit culture is exercising professional scepticism and also the public interest purpose. Unfortunately, in the Indian situation, most auditors don’t have public orientation, he rued, adding that they are poor in their craft and unapologetic about it.

Published on October 26, 2021

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