Litmus test for audit firms: Quality Review Board completes a decade

The practice of quality audit and audit-quality review conducted by QRB will usher in greater reliability and transparency and increase confidence in audits in the country.

The government is leaving no stone unturned to create a clean economy. However, we should not expect only the government to put in all the effort.  All organisations and citizens of the country should do their bit for a cleaner and better economy.
 
To improve the quality of audit services in the country, the Central Government constituted a Quality Review Board (QRB) by Gazette Notification GSR 448(E) in 2007. Under the Chartered Accountants Act, 1949, the QRB is an independent body that reviews the quality of services rendered by CAs in the country, and its review process contributes towards an increasingly robust and transparent financial reporting system in the country. A ‘quality audit’ is achieved when the auditor’s opinion on financial statements can be relied upon.
 
During the 68th CA Day speech on July 1, 2017, PM Narendra Modi not only recognised the CA fraternity as one of the most important stakeholders in the government’s endeavour to create a transparent economy, but also emphasised that quality audits help in nation-building. Quality audits can address the menace of suppression of revenues and fudging of accounts by firms, which ultimately leads to creation of shell companies to launder black money.
 
QRB guides CAs to improve the quality of services and adhere to various statutory and other regulatory requirements. It is a robust set-up, where the central government nominates the chairperson and five members. Members are nominated from amongst persons of eminence with experience in law, economics, business, finance or accountancy. Apart form the Comptroller & Auditor General of India, the current Board has senior representatives from the Ministry of Corporate Affairs, Ministry of Law & Justice and the Securities & Exchange Board of India (SEBI). The Institute of Chartered Accountants of India (ICAI) also nominates five members. Majority of the members of QRB are independent of the profession.
 
Since FY 2012-13, QRB has formalised a distinct and strong system of independent review of statutory audit services of the audit firms auditing accounts of top-listed and other public interest entities in India. QRB’s reviews involve assessment of the work of statutory auditors while carrying out their statutory audit function, so that QRB is able to assess (a) the quality of audit and reporting by the statutory auditors; and (b) the quality control framework adopted by the audit firms in conducting audit.
 
The major focus of the reviews is on compliance with technical standards, relevant laws & regulations, quality of reporting and a firm’s quality-control framework. Since FY 2012-13, QRB has selected 585 review assignments for review of statutory audits of 443 top-listed and other public interest entities in India. QRB has selected about 300 audit firms, which had performed these audits, for conducting their reviews according to a set procedure and timeline. The selected entities range from various industries/sectors and represent more than 85% market cap of the stocks listed on the National Stock Exchange and Bombay Stock Exchange. 
 
Since FY 2012-13, based upon 331 completed reviews, 29 cases have been recommended to the ICAI Council for consideration for further action, including disciplinary action, and in 181 cases, appropriate advisories have been issued by the QRB to the concerned audit firms, highlighting their shortcomings and advising them towards improvement in the quality of their services. 
 
The whole review mechanism is a strong deterrent to errant audit practices. Also, a huge number of audit firms have reacted responsibly by taking action to improve compliance and overall audit quality. Not just in India but internationally also, QRB has initiated dialogue for co-operation with the International Forum of Independent Audit Regulators (IFIAR), as well as independent audit regulators of various other countries.
 
It is believed that reinforcing market confidence through audit reliability and increasing audit transparency are real challenges today. Overall, the practice of quality audit and audit-quality review conducted by QRB will usher in greater reliability and transparency and increase confidence in audits in the country.
 
QRB’s record in cleaning the economy:
585 review assignments of statutory audits 
443 top-listed and other public interest entities’ statutory audits selected for review
300 registered audit firms selected for review
331 review assignments finalised
181 appropriate advisories issued to the concerned audit firms by QRB
29 cases recommended to ICAI Council for appropriate action.
 
The QRB website (www.qrbca.in) can be visited for more information on the role and functions of QRB.
 
 
About the author:
Dr. Parvinder Sohi Behuria, IRS (Retd.), is the Chairperson of QRB.
 

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