Accounting regulator Institute of Chartered Accountants of India (ICAI) has said apart from acting as an auditor of a company, a chartered accountant (CA) can also look into its management for evaluating companys exposure to corporate risks. Risk assessment is traditionally the core competence of credit rating agencies.
The move expands the CAs role to counter corporate frauds, a cause of concern for both the investor as well as for the regulator, an official in ICAI, who did not wish to be named, said. The body has already issued an internal audit norm.
According to the new norm, CAs will evaluate the mechanism put in place by companies towards any risk of a breach of corporate best practices. This will include looking into possibilities of fraudulent financial reporting and misappropriation of assets within an entity and bringing out the assessment report to knowledge of the management.
The internal auditor shall also be responsible towards taking corrective action, once he foresees a fraud within the organisation. In a bid to ensure accountability for the auditors, the norm specifies that regular evaluation of the internal management controls should be conducted, a report on which should also be prepared.
Traditionally, CAs are known for a post-mortem analysis of a companys financial affairs. The new role will open a wide array of work for the CAs as organisations increasingly lay emphasis on risk controls. Internal audit is being seen as a healthy control mechanism for companies towards such risk-mitigation and has been endorsed by the government too. The ministry of corporate affairs proposes to make internal audit standards statutory, a move that shall make companies violating them guilty under the company law.
An internal audit function is spread beyond checking of financial transactions. According to ICAI president Ved Jain, the CAs will be guided by the standards, which will act as a professional code of conduct while conducting such functions.
With this standard, the ICAI has issued a total of 10 internal audit norms. Internal audit standards are meant for developing with companies a system of internal governance which help them ensure good corporate governance practices.