Home Ministry of affairs Center to amend Companies Act and tighten audit regime soon

Center to amend Companies Act and tighten audit regime soon

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The Ministry of Social Affairs will soon put in place a set of severe measures to tighten the framework of auditors aimed at guaranteeing their independence.

The measures aim to control the recurrence of situations such as the bankruptcy in 2018 of the companies of the group Infrastructure Leasing and Financial Services Ltd. (IL&FS).

The ministry completed consultation on a report on audit reforms submitted to Finance and Trade Minister Nirmala Sitharaman in March by a committee of experts. Drafting of a bill to amend the Companies Act will begin now, a person familiar with government discussions has said, indicating the government’s willingness to raise the bar on statutory audit.

Audit reforms will now become a priority for the Ministry as reforms in other areas have reached an advanced stage – a Competition Act Amendment Bill has already been tabled in Parliament and work is ongoing. an advanced stage on bankruptcy reforms.

The ministry has received positive feedback on strengthening the audit framework, said the person quoted above, who spoke on condition of anonymity. An email sent to the Department of Business spokesman on Friday went unanswered at the time of publication.

One of the proposals is to tighten the audit framework by prohibiting auditors from providing non-audit services to their audit clients who are public interest entities such as listed companies, large companies and insurance or banking companies. There could be some relaxation in the case of non-public interest entities.

The proposals also include mandatory disclosure by auditors in the audit report of the prior relationship with the audit client, mandatory joint audits in certain categories of companies, and mandatory impact analysis of any adverse remarks or reservations. in the audit report.

The proposed bill is also expected to provide for a one-year cooling-off period for auditors before they assume management positions in the company they have audited or in any of its associates. In addition, auditors will need to fully explain the circumstances of abandoning an audit engagement, such as company non-cooperation, fraud, or serious non-compliance.

Proposed changes to the Companies Act are also expected to include measures to improve the ease of doing business.

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