The CA Institute has taken the next big step towards further improving audit and assurance quality in the country. Its Central Council has now made peer review mechanism mandatory for certain categories of firms and plans to introduce it in phases over the next three years, Nihar Jambusaria, President, Institute of Chartered Accountants of India (ICAI) told BusinessLine.
A ‘peer review’ is an examination of the audit or assurance work of an audit firm/auditor by another CA Institute’s practising member.
Peer review, as a concept, was introduced on a voluntary basis in 2002. It was then rolled out with the objective of maintaining, upgrading, promoting and certifying the quality of audit in India, in view of the fact that the audit system had come under close scrutiny globally.
“The latest council decision is a historic one to mandate the peer review mechanism for certain categories of firms rendering assurance services to specific class of entities and will go a long way in enhancing the audit quality,“ Jambusaria told BusinessLine on Friday.
He said that the implementation will begin, in a phased manner, from April 1, 2022, and will first apply to practice units (audit firms) that have undertaken statutory audit of enterprises and whose equity or debt securities are listed in India.
Dayaniwas Sharma, Chairman, Peer Review Board of ICAI, said that over the next three years, the roll out will steadily cover firms providing assurance services to companies, other than those listed on the stock exchanges.
The second phase ( from April 1, 2023) is for the firms that have undertaken statutory audit of unlisted public companies having paid-up capital of not less than ₹500 crore or annual turnover of not less than ₹1,000 crore, or having, in aggregate, outstanding loans, debentures and deposits of not less than ₹500 crore as on the March 31 of the immediate preceding financial year.
The third phase ( From April 1, 2024) covers firms that have undertaken the statutory audit of entities and have raised funds from public or banks or financial institutions of over ₹50 crore during the period under review, or any corporate body, including trusts, that are covered under public interest entities. The last leg of the mandate covers firms conducting audits of branches of Public Sector banks, said Jambusaria.
Jambusaria highlighted that the first recognition of ‘peer review’ by a regulator came in 2010 when SEBI mandated the submission of the limited review/statutory audit reports to stock exchanges by the auditors, who held valid certificates issued by the peer review board of the ICAI. This came into effect from April 1, 2010.
Now the ICAI is extending the mechanism beyond listed companies to various categories of enterprises, including large unlisted ones and banks, so as to further improve assurance quality in the country, he added.
To introduce peer review in India, the systems had to be built up in 2002 to ensure that the mechanism came up to the expectations of the users, auditors, stakeholders and regulators.
The system of peer review proposed in 2002 for India was quite different when compared to the US, where it was conducted by firm of accountants on mutual basis. In India, it was proposed to be conducted by an independent reviewer under the regulatory framework.
The special features like Independent Board/ Secretariat, representatives of regulatory and Government agencies on the Board, empanelment of reviewers by the Board for carrying out the review and creation of China wall between the Board and disciplinary proceedings, differentiated the peer review system in India, in comparison to other countries, sources said.