Abstract
Setting up of National Financial Reporting Authority (NFRA) in India as an independent regulator to audit the auditors has renewed a debate on ‘peer review’ and ‘independent review’. While the global practice is that of an independent oversight over the auditors, the professional body of auditors in India- Institute of Chartered Accountants of India (ICAI) is opposed to the move of the government to appoint a regulator over auditors. This paper examines the perception of auditors and other stakeholders in India on the mechanism of auditing the auditors. The study finds that all stakeholders including practicing public accountants believe that the present state of auditing is not satisfactory in India. The difference in perception is on the setting up of the independent authority (NFRA) to audit the auditors. While the chartered accountants in India believe that self-regulation over the auditors through the existing mechanism may be made more effective, the other stakeholders overwhelmingly support the quasi-regulatory body for independent review of audit service.
Highlights
Reviewing the audits is a well-established practice to assure the quality of audit services
The difference in perception is on the setting up of the independent authority (NFRA) to audit the auditors
While the chartered accountants in India believe that self-regulation over the auditors through the existing mechanism may be made more effective, the other stakeholders overwhelmingly support the quasi-regulatory body for independent review of audit service
Summary
Reviewing the audits is a well-established practice to assure the quality of audit services. In 1988, the American Institute of Certified Public Accountants (AICPA) made periodic quality peer review of public accounting firms compulsory (Alam et al, 2000). Public Company Accounting Oversight Board (PCAOB) was established in 2002 by Sarbanes-Oxley Act (SOX) to review the audits of public companies. The PCAOB with a mandate to set up audit standards and conduct inspections and disciplinary proceedings against the errant auditors unleashed a regime of independent review of audit firms which were self-regulated until . PCAOB has been quite effective in auditing the public accountants in the US through issuing numerous auditing standards; rules for the auditors; regular inspections of registered public accounting firms to assess compliance with the regulations; and penalising the errant auditors
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