The CA institute has deferred by three months the implementation of mandatory peer review for audit of large unlisted companies to July 1 from the earlier announced April 1.

This would mean that audit firms without peer review certificate cannot undertake statutory audit — with effect from July 1, of specified large unlisted companies. 

This norm would apply for unlisted public companies having paid up capital of not less than ₹500 crore or having annual turnover of not less than ₹1,000 crore or having in aggregate outstanding, loans, debentures and deposits of not less than ₹500 crore as on March 31 of immediately preceding financial year.

The CA Institute has also deferred till July 1 its earlier decision of requiring audit firms with at least five partners to hold a peer review certificate for undertaking audits.

A ‘peer review’ is an examination of the audit or assurance work of an audit firm/auditor by another CA Institute’s practising member.

Peer Review is primarily directed towards ensuring as well as enhancing the quality of audit and assurance services of chartered accountants in practice. Peer review of a practice unit is conducted by an independent evaluator known as a peer reviewer.

The peer review process is intended to review the quality control framework of the practice unit as well as proper and consistent application of such control frameworks across engagement samples selected for review.  

More awareness

Commenting on the CA institute’s latest move, Aniket Sunil Talati, President, ICAI said that the ICAI has deferred the applicability of the second phase of peer review mandate as some of the practice units required further understanding and awareness. Also, there is a need to organise more and more training programme for peer reviewers, Talati added.

It maybe recalled that the first phase of peer review mandate was rolled out for listed companies from April 1, 2022. From this date, statutory audit of listed companies are being undertaken only by audit firms with peer-review certificate.

The first recognition of ‘peer review’ by a regulator came in 2010 when SEBI mandated the submission of the limited review/statutory audit reports to stock exchanges by the auditors, who held valid certificates issued by the peer review board of the ICAI. This came into effect from April 1, 2010.

The CA Institute had in January last year extended the peer review mechanism beyond listed companies to various categories of enterprises, including large unlisted ones and banks, so as to further improve assurance quality in the country.

While the second phase covering large unlisted companies has now been extended to July 1, indications are that the third phase covering firms that have undertaken the statutory audit of entities which have raised funds from public or banks or financial institutions of over ₹50 crore during the period under review would be implemented from April 1 next year.

Quality audit

G Ramaswamy, former ICAI President, said this is a welcome move from ICAI for implementing a strong peer review mechanism among professionals and firms. It will be useful for implementation of joint audit, multidisciplinary partnership and other reforms as recommended by the MCA appointed Company Law Committee, he added.

Amarjit Chopra, former ICAI President, said the ICAI’s latest decision is on expected lines and is a step towards the improvement of quality processes with regard to audit.

“Today since SEBI has already mandated peer review of audit firms conducting statutory audit of listed firms, it was imperative that ICAI also lay down ground rules for auditors of bigger unlisted companies. People are now likely to get peer reviewed voluntarily also as CAG is now giving additional weightage for firms with peer review certificate”, he said.

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