Regulatory Impact Assessment (RIA) for revision of existing Accounting Standards
The Institute of Chartered Accountants of India (ICAI) has submitted an Approach Paper to the National Financial Reporting Authority (NFRA) in accordance with Rule 6 of the National Financial Reporting Authority Rules, 2018, for revision of existing accounting standards of companies that are not required to follow Indian accounting standards (Ind ASs). ICAI also submitted suggested texts for 18 revised Accounting Standards (ASs) out of a total of 32 revised ASs scheduled to be prescribed after the end of this AS revision project, together with the Approach Paper.
The majority of the companies to whom these proposed updated ASs will apply, according to the NFRA, are Private Limited Companies. Many of the businesses have a very low net worth, turnover, or debt, or a mix of these factors. Tiny families, perhaps with a small circle of friends and family, would typically own them. As a result, public interest in these companies’ General Purpose Financial Statements (GPFSs) is likely to be low. There are several Revised ASs that are very extensive and complex, and they may not be relevant or beneficial to the few users of these Companies’ GPFSs.
The expected standard audit cost to perform a reasonably good quality audit in accordance with the letter and spirit of the Standards on Auditing (SAs) is significantly higher than the currently reported audit fee ranges, with a large percentage of AS Companies reporting Payment to Auditors of less than $25,000.
Based on the foregoing findings, and convinced by the limited public interest in AS Companies’ GPFSs and the need to enable a regulatory environment conducive to their economic growth, NFRA has recommended to the ICAI that a Regulatory Impact Assessment of this revision proposal be conducted, which should include all of the standard features of such a process, and, in particular, to take action as follows:
a) The Approach Paper should be created in a transparent way following comprehensive national engagement with the major stakeholders, namely the Preparers – MSMCs (Micro, Small and Medium-Sized Companies) and Auditors – MSMPs (Micro, Small and Medium-Sized Professionals) (Micro, Small and Medium-size Practitioners). If the ICAI has conducted any previous public consultations on the Approach Paper, it is urged that it transmit the analysis of the public comments to the NFRA.
b) Comprehensive research and study should be conducted on the costs to Preparers of complying with these Revised ASs, as well as their technical resource capabilities, and these costs should be weighed against the potential advantages to all AS Company stakeholders.
c) The ICAI should rethink the Structure, Form, and Contents of Revised ASs for AS Companies and align them with the nature, size, and complexity of ASs, as well as their commercial demands, company size, ability to comply with prescribed standards, and relevance to their primary users.