A government-appointed panel has suggested strengthening the National Financial Reporting Authority (NFRA) to deal with "contemporary challenges" related to auditors, audit firms and networks operating in the country, according to a release.
The committee, consisting of three government officials, was set up in April following directions from the Supreme Court in a case regarding multinational accounting firms.
A release issued by the Corporate Affairs Ministry on Wednesday said the committee of experts has submitted its report on regulating audit firms and the networks to the government.
"The global trend indicates a clear shift from self-regulation to independent regulatory structure in the domain of audit regulation due to the failure of self-regulatory model in regulating the professionals," the ministry said.
As per the release, the committee found establishment of the NFRA as a necessary institutional reform which would align the Indian audit landscape with the global position.
"The committee also recommended measures to further strengthen the operation of NFRA to address contemporary challenges in relation to auditors, audit firms and networks operating in India," it added.
More From This Section
An independent regulator, the NFRA has sweeping powers to act against erring auditors and auditing firms. The NFRA's jurisdiction would extend to all listed companies as well as large unlisted public companies.
According to the release, the report addresses the issues raised by the Supreme Court with a focus to strengthen the legal regime of auditors and promote development of the audit profession in the country.
"The committee scrutinised the networking arrangements adopted by the big four audit firms commonly referred as multi-national accounting firms to understand their legal structure and method of operation," it noted.
Further, the panel looked at serious concerns like conflict of interest and transparency arising out of non-audit services provided by auditors and their network. It has suggested necessary checks and balances.
The report also deals with the issue of concentration of market power which is another contemporary problem in the market for audit services, the release said.
Among others, the panel has delved into issues like advertising, multi-disciplinary practice firms and branding as well as has suggested measures to rationalise the existing laws.
"These measures are expected to not only enhance the standards of services offered to corporates, but also facilitate the audit firms to expand in size and operation to compete globally," the release added.
Anurag Agarwal, Joint Secretary at the Corporate Affairs Ministry, Sudhanshu Pandey, Additional Secretary at the Department of Commerce, and Ravinder, Joint Secretary at the Department of Industrial Policy and Promotion, were among the panel members.