ICAI writes letter to MCA endorsing mandatory joint audit proposal

Corporates, especially listed companies and the large unlisted ones, may soon have to gear up to follow the concept of mandatory “joint audits” of their financial statements, going by the thinking in government circles and the CA Institute. 

The CA Institute has now written to the corporate affairs ministry (MCA), extending its full support for such a recommendation, as made by the Company Law Committee (CLC) which submitted its report in March this year.

In joint audits, two or more auditors conduct an audit on a legal entity (the auditee) to produce a single report. Currently, they are being done in the case of public sector banks and companies.

The CLC had in its report recommended that Companies Act 2013 be amended to enable the Central government to mandate joint audits for those class of companies which are prescribed by the government. In the case of a joint audit, the provisions concerning the extent of liability of individual auditors should also be provided in Companies Act 2013, the CLC had said.

“We (ICAI) have agreed on the proposal on joint audits. We have given in writing to MCA that we accept the CLC recommendations on this front,” Debashis Mitra, President, Institute of Chartered Accountants of India (ICAI), told BusinessLine.

The relevant amendments on joint audits may happen when the Centre brings in the next round of comprehensive changes to the Companies Act 2013 during the monsoon or winter session of the Parliament.

Increase costs

Experts are quite divided on the utility of this system regarding audit quality. Industry is somewhat opposed to this concept as it could increase the cost of audits. It is also contended in certain quarters that just as “auditor rotation” had not delivered, even joint audits may not prove useful.

Mitra, however, asserted that it would not be right to conclude that auditor rotation has not delivered.

“Auditor rotation has delivered. And we are hoping joint audits will also deliver,” Mitra added.

There are also experts who wholeheartedly support the introduction of “joint audits”.

Promote transparency

G Ramaswamy, former ICAI President and a member of the CLC, said that joint audits would promote transparency, as well as give comfort to all stakeholders, including management. 

“Joint audits should be started with listed companies and large body corporates and then to small and medium companies. This is an excellent concept for promoting professionalism and good governance in the corporate sector. Financial statements will then have more transparency and better disclosures, so that all stakeholders can benefit,” he said.

The concept of networking and multidisciplinary partnerships — already introduced by ICAI — will also help in making joint audits a success, Ramaswamy added.

Source : https://www.thehindubusinessline.com/companies/ca-institute-bats-for-introduction-of-joint-audits-in-line-with-company-law-committee-recommendation/article65457421.ece