The National Financial Reporting Authority (NFRA) and the Institute of Chartered Accountants of India (ICAI) are working on a mechanism to bolster regulatory coordination and improve audit quality in the country.

According to a report in the Economic Times, the move follows friction between the bodies over the revamp of a key auditing standard and is aimed at reducing the chances of future regulatory clashes.

People aware of the discussions told the publication that the proposed framework will require senior officials from both the NFRA and ICAI to meet more regularly to discuss significant matters.

The mechanism is also expected to provide for broader and more systematic sharing of information, especially around auditors’ involvement in suspected corporate frauds, and for more joint initiatives to improve audit quality in India.

One person with direct knowledge of the development was quoted by the Economic Times as saying: “The mechanism would ensure regular interactions between the regulators. The ultimate goals of both of them are the same – improving audit quality and strengthening the audit ecosystem in India.”

The ICAI president and two senior office-bearers already sit on the NFRA’s 13-member board.

However, the NFRA and ICAI expect regular engagement between the two bodies to foster a better understanding of each other’s roles and sensitivities.

As part of efforts to delineate responsibilities, the ICAI has decided to call off its “desktop review” of the financial statements of Gensol Engineering, where an alleged fraud has been flagged, after the NFRA initiated its own investigation.

The ICAI may also drop its review of the accounts of IndusInd Bank, as the NFRA is examining that case as well.

Under existing rules, the institute is not permitted to continue its own proceedings once the NFRA has started a formal investigation into a matter.

The institute also assured the NFRA that it does not intend to interfere with the authority’s remit over auditor investigations, particularly in fraud cases involving auditors of listed companies, the report added.

The NFRA, established under the Companies Act, holds the authority to act against auditors of all listed entities and large unlisted “public interest” companies for professional misconduct.

Before the NFRA was constituted, the ICAI was effectively the sole professional body disciplining auditors across the board.