Auditing norms prepared by the Institute of Chartered Accountants of India (ICAI) are likely to be vetted by an umbrella body consisting of various regulators, as the government learns its lessons from the Satyam fraud and makes auditing norms legal and binding like accounting standards.
The National Advisory Committee on Accounting Standards (Nacas), has representations from the Reserve Bank of India, Securities Exchange Board of India and Comptroller & Auditor General of India, besides the three professional institutes of accounting, company secretaries and cost accounting.
It will now oversee the auditing norms prepared by ICAI and recommend changes wherever necessary, according to a government official. Nacas was established in 2001 and functions under the ministry of corporate affairs.
Statutory recognition of auditing norms is already on the agenda of the planned Companies Bill, 2009. Once auditing norms are given statutory recognition, flouting them could lead to legal action.
Auditing standards are independent of accounting standards and are currently used as a best practices directive to be followed. While non-conformity with accounting standards makes a company liable for regulatory action in accordance with the Companies Act, non-adherence with auditing standards does not entail regulatory action.
Auditors are required to follow the ICAI norms while performing an audit, and non-compliance can lead to action being taken at the level of the institute. On the contrary, accounting standards, which guide the preparation and maintenance of financial books of companies, are statutory in nature and non-compliance could lead to legal action.
The need for auditing standards was particularly felt after the Satyam crisis highlighted the need for regulatory control on the functioning of auditors. The Companies Bill, 2009, proposes to make auditing standards a part of the law, so that any auditor found contravening them can be acted against as per the provisions of law.