Terms of Reference
Terms of Reference of Financial Reporting Review Board
Formation of the Financial Reporting Review Board
- The Council of the Institute of Chartered Accountants of India, at its 226th meeting, held in July 2002, constituted the Financial Reporting Review Board (FRRB) as its non-standing committee.
Scope and Functions of the Financial Reporting Review Board
- The FRRB would review the general purpose financial statements of certain enterprises and auditor’s report thereon with a view to determine, to the extent possible:
a) Compliance with the generally accepted accounting principles in the preparation and presentation of financial statements;
b) Compliance with the disclosure requirements prescribed by regulatory bodies, statutes and rules and regulations relevant to the enterprise; and
c) Compliance with the reporting obligations of the auditor.
- The FRRB may review the general purpose financial statements of the enterprise and the auditor’s report thereon either suo motto or on a reference made to it by any regulatory body like, Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority, Ministry of Corporate Affairs, Election Commission of India etc. The FRRB may also review general purpose financial statements of the enterprises and the auditor’s report thereon relating to which serious accounting irregularities in the general purpose financial statements have been highlighted by the media reports.
- In case the FRRB finds any material / serious non-compliance in respect of the factors stated at paragraph 2 above, it would refer the case to the Director (Discipline) of the Institute of Chartered Accountants of India for initiating action against the auditor under the Chartered Accountants Act, 1949. Insofar as the management of the enterprise is concerned, the FRRB would inform irregularity to the regulatory body relevant to the enterprise.
- In cases where FRRB observes non-compliance viz.-a-viz. paragraph 2 above, which are not material non-compliances and which do not affect the true and fair view of financial statements, the FRRB may not refer the case to the Director (Discipline) of the Institute of Chartered Accountants of India for initiating action against the auditor under the Chartered Accountants Act, 1949. In such cases, the FRRB would appropriately bring the non-compliance to the attention of the auditor. Keeping in line with the Council’s Decision at its 361st meeting (adjourned) held on 10th and 11th January 2017 the FRRB would inform to PRB the name of company, financial year and name of concerned auditor to whom advisory has been issued so that it may accordingly be considered during the Peer Review. Such kind of efforts will make the regulatory mechanism of the Institute more effective.
- The FRRB may undertake review of audit qualification(s) in the auditor’s report for the enterprise referred by Qualified Audit Report Review Committee of SEBI to provide opinion to SEBI as to whether referred qualification(s) is justified.
In case the FRRB assess that modified opinion is not justified and auditor has exercised gross negligence in discharging his duties, the FRRB would refer the case to the Director (Discipline) of the Institute. In cases, where modified opinion, is assessed to be justified and only immaterial non-compliances are observed in respect of the manner or information presented, the FRRB would appropriately bring the non-compliance to the attention of the auditor concerned.
- With a view to apprise the members of the Institute and others concerned about the major non-compliances observed during the review, the FRRB shall compile such non-compliances from time to time and publish the same in Journal of the Institute and also host them on the Website of the Institute, without mentioning the names of the enterprises concerned and/or their auditors. The Board may also release the publication on non-compliances observed during the course of review
- The enterprises within the purview of the FRRB include:
a) Entities whose equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India.
b) Banks (including co-operative banks), financial institutions or entities carrying on insurance business.
c) All commercial, industrial and business reporting entities, whose ‘net worth’ exceeds rupees two hundred & fifty crore in the immediately preceding accounting year. (the term ‘net worth’ would carry same meaning as defined u/s 2(57) of the Companies Act, 2013)
d) Holding and subsidiary entities of any one of the above.
e) Such other enterprise or category of enterprises, for which any information relating to non-compliance of generally accepted accounting principles in the preparation and presentation of financial statements, non-compliance of the disclosure requirements prescribed by regulatory bodies, statutes and rules and regulations relevant to the enterprise and non-compliance of the reporting obligations of the enterprise and the auditor brought to its notice, which in the opinion of the Board may be undertaken for public interest, including the enterprises mentioned in paragraph 3 above.
- There could be accounting and auditing issues that may require a clarification. The FRRB does not have any power to issue such clarifications. However, if the FRRB is of the opinion that the issue may require a clarification, it may refer the issue to the appropriate committee of the Council for consideration.