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ICAI sends a letter to NFRA on the issue of NFRA Consultation Paper on Statutory Audit and Auditing Standards for MSME

ICAI sends a letter to NFRA on the issue of NFRA Consultation Paper on Statutory Audit and Auditing Standards for MSME

The Institute of Chartered Accountants of India (ICAI) addressed the National Finance Reporting Authority (NFRA) in response to the submission of “Revision of the Existing Accounting Standards: Approach Paper (2020) developed by(ICAI) NFRA and the publication of NFRA Consultation Paper on ‘Statutory Audit and Auditing Standards for [Micro, Small and Medium] Companies.’

“We are awestruck and amazed to discover how the Approach Paper on Revision of Existing Accounting Standards is been accepted by NFRA. It should be noted that when preparing the revised ASS in accordance with the Approach Paper the transparent process was adhered to by ICAI throughout the entire process, where drafts of exposure were released, and comments on them were debated at ASB members of ICAI (which was mainly consisted of members of SEBI, MCA, RBI, C&AG, Industry Bodies). The ICAI’s Council, as well as NACAS meeting, were also held and lengthy discussions were held. The whole process of issuance of Exposure Drafts and analyzing the comment of the stakeholders ASB from ICAI meetings, and finally submitting the revised draft ASS is in line with the requirements of the Regulatory Impact Assessment,” the ICAI stated.

NFRA has, in the past 15 months not discussed the necessity to conduct Regulatory Impact Assessment or with the members of (NFRA) during its meetings and with (ICAI). ‘The ICAI has submitted an approach paper in the month of May of 2020’. A two-hour presentation was also given to the Chairman of NFRA in which inputs were provided by him to present the standards in a manner that was created on the basis of a logic division. In reality, NFRA requested to submit the revised standards in a specified format by way of a letter of March 11, 2021, which was later submitted. NFRA’s decision to reject the Approach Paper on Revision of Accounting Standards that are in force on account of the fact that it did not conduct Regulatory Impact Assessment (RIA) in the absence of proper discussions in the Authority meeting isn’t appropriate.

The Executive Body (Executive) of NFRA is not able to make decisions in relation to ASS and SAS so anything that is related to ASS and SAs must be formally discussed in the NFRA Board meeting. Consequently, NFRA’s decision to reject or return the Approach Paper with no discussion during the Board meeting is not within the scope of its authority. There was an NFRA Board meeting was held just on September 20th, 2021. The issue related to the Approach Paper could have been debated at that time.

In the beginning, it is important to recognize this: the Consultation Paper published by NFRA is not within its operational authority. It is not the responsibility to determine the need for an audit of specific classes is required or not. The statement in which it is stated that Statutory Audit has no role to play in the instance of businesses with a Net Worth lower than INR 250 crores does not reflect any investigation.

ICAI suggests that NFRA discuss the Revised approach paper and guidelines at the full-time session of members. The Consultation Paper regarding Statutory Auditing as well as Auditing Standards for MSMCS, be immediately withdrawn and discussed during a full Meeting of the members. It is important to note that the method of communication that was chosen to be used by NFRA i.e. communicating via media is not the way to have selected and this issue must be discussed with Board Members during an NFRA Board meeting.

Source – Taxscan

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