Debarring an audit firm should be an exception, and not a rule: Company Law Committee

The Company Law Committee (CLC) – a 11-member panel headed by Corporate Affairs Secretary Injeti Srinivas has submitted a report to the Finance Minister suggesting that an audit firm should be debarred only if the firm refuses to co-operate in the proceedings or if its top management is involved in the fraud.

According to the report, debarring an audit firm should be an exception, and not a rule.

This is inconsistent with the current regime where the National Financial Reporting Authority (NFRA) – the new regulator of auditors in listed and large companies, is empowered to pass an order debarring any auditor — an individual or a firm — from being appointed an auditor, an internal auditor or a valuer for a minimum period of six months and a maximum of 10 years.

Also, there is no legal provision to limit the debarment to the partner(s) actually involved in the wrongdoing.

According to experts, not only will such an approach be a departure from the current harsh regime, it will also help corporates in terms of ease-of-doing-business and minimize costs in getting new audit firms on board.