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Are Auditors' Exits a Turning Point for Mid & Small Caps?
Jun 8, 2018

Talking about frauds and wrong corporate governance behaviour, the Companies Act requires every company to get its accounts audited by qualified chartered accountants.

In India, Institute of Chartered Accountants of India (ICAI), a self-regulatory body, governs the auditing and accounting standards.

Auditors are members of ICAI and they are governed by their own institute. It is believed, this has led to wrong incentives and frauds like Satyam, Manpasand, and Punjab National Bank.

However, with the recent PNB fraud the government took partial control from ICAI. The government in March 2018, notified the National Financial Reporting Authority (NFRA).

NFRA is the new regulator for auditing and accounting standards for listed and large public sector unlisted companies.

An independent regulator means tighter control over auditors and their reports.

Interestingly, this has led to a sharp increase in the number of auditors resigning in-between a financial year... a rare event, historically.

In the last one month, around fifteen auditors have resigned and for the period January to May the number stands at thirty-two. In fact, there is an increase in the 'qualified opinions' as well.

We at Smart Money Secrets, have always tried deciphering any such malpractices in the companies we analyse and the introduction of NFRA will help us in our endeavour.

We strongly believe, the introduction of NFRA is an important step to build up a transparent mechanism for accounting, auditing, and financial reporting. Thus, better corporate governance will lead to better-quality recommendations for our subscribers.

Data Source: Prime Database, Livemint

This Chart Of The Day was published in The 5 Minute WrapUp - After Vakrangee and Manpasand, More Auditors May Soon Resign. To Protect Your Wealth, Avoid these Stocks

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