The Institute of Chartered Accountants of India (ICAI) is tightening its oversight on corporate financial reporting. The institute’s Financial Reporting Review Board (FRRB) has announced a new set of parameters to improve fraud detection and enhance the quality of financial statement reviews beginning in the financial year 2024.

A Stronger Framework For Financial Transparency

The FRRB, which serves as the monitoring arm of the ICAI, reviews the financial statements of both listed and unlisted companies to identify possible accounting irregularities and frauds. The board will now give top priority to firms that are highly leveraged, have negative reserves, or pay abnormally low audit fees relative to their financial size. Additionally, companies undergoing insolvency resolution will be placed under immediate scrutiny.

While the new framework does not define strict numerical thresholds, these indicators are expected to help the FRRB identify companies that may be under-reporting risks or engaging in questionable accounting practices. “These parameters will be used from FY24 onwards to ensure deeper scrutiny and improved compliance with auditing standards,” said Charanjot Singh Nanda, President of ICAI.

Identifying Red Flags

The revised review process will allow the FRRB to automatically select companies whose audit fees appear disproportionately low when compared with their operations or turnover. Similarly, entities showing high debt-to-equity ratios or poor liquidity positions will come under the microscope. The move aims to curb cases of financial manipulation and prevent accounting malpractice before it impacts investors or the broader market.

The FRRB’s committee, which includes members from regulatory bodies such as SEBI, C&AG, CBDT, IRDAI, CBEC, NABARD, and NITI Aayog, will collectively assess these companies using the updated guidelines.

Current Investigations And Past Findings

The FRRB is currently reviewing financial irregularities at Gensol and IndusInd Bank, following high-profile accounting lapses flagged earlier. In a previous case, the board had found gross negligence in Byju’s accounting records and referred it to ICAI’s disciplinary committee for action.

So far, the FRRB has reviewed over 1,300 financial statements, with nearly 80 percent of cases taken up on a suo moto basis. Of these, more than 800 cases resulted in advisories to auditors for non-compliance, while 205 cases were referred to ICAI’s disciplinary committee and 183 cases to regulators for further examination.

Strengthening Financial Discipline

With this update, the FRRB will continue to operate under a three-tier review system, ensuring that every company complies with accounting, auditing, and assurance standards. These reforms align with India’s growing focus on corporate transparency and accountability in financial disclosures.

By focusing on critical red flags such as leverage, reserves, and audit fees, ICAI’s new approach aims to make financial reporting more reliable and protect stakeholders from hidden financial risks.

 

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