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ICAI calls for the introduction of joint audits as recommended by the Company Law Committee

Companies, especially listed companies and large unlisted companies, may soon have to prepare to follow the concept of mandatory “joint audits” of their financial statements, following the thinking of government circles and the CA Institute. The CA Institute has now written to the Ministry of Corporate Affairs (MCA), expressing its full support for such a recommendation, as did the Company Law Committee (CLC) which delivered its report in March this year.

In joint audits, two or more auditors perform an audit on a legal entity (the audited entity) to produce a single report. Currently, they are carried out in the case of banks and public sector enterprises.

The CLC had in its report recommended that the Companies Act 2013 be amended to allow the central government to commission joint audits for categories of companies prescribed by the government. In the case of a joint audit, provisions regarding the extent of liability of individual auditors should also be provided for in the Companies Act 2013, the CLC had said.

“We (ICAI) agree on the proposal for joint audits. We have indicated in writing to the MCA that we accept the recommendations of the CLC on this front,” said Debashis Mitra, President of the Institute of Chartered Accountants of India (ICAI). Activity area.

The relevant changes on joint audits could come when the Center makes the next round of comprehensive amendments to the Companies Act 2013 during the monsoon or winter session of Parliament.

Increase costs

Experts are fairly divided on the usefulness of this system for audit quality. The industry is somewhat opposed to this concept as it could increase the cost of audits. It is also argued in some quarters that just as “auditor rotation” has not worked, even joint audits may not be helpful.

Mitra, however, claimed that it would not be fair to conclude that listener rotation did not work.

“The rotation of auditors has paid off. And we hope joint audits will also be effective,” Mitra added.

There are also experts who wholeheartedly support the introduction of ‘joint audits’.

Promote transparency

G Ramaswamy, former ICAI president and CLC member, said joint audits would promote transparency and reassure all stakeholders, including management.

“Joint audits should be launched with listed companies and large companies, then with small and medium-sized companies. It is an excellent concept to promote professionalism and good governance in the corporate sector. The financial statements will then be more transparent and better disclosed, so that all stakeholders can benefit,” he said.

The concept of networking and multidisciplinary partnerships – already introduced by the ICAI – will also help make joint audits a success, Ramaswamy added.

Published on

May 24, 2022