A step toward strengthening India’s corporate governance ecosystem, the Institute of Chartered Accountants of India (ICAI) is working with the Securities and Exchange Board of India (SEBI) to develop a formal mechanism that empowers auditors and chartered accountants to report suspected corporate frauds early.
According to sources, the proposals under discussion would advise chartered accountants to alert regulators when they detect early red flags—such as an unusual spike in borrowing, a surge in related-party transactions, or uncooperative behavior from company management.
ICAI President Charanjot Singh Nanda recently met SEBI Chairman Tuhin Kanta Pandey to advance this initiative. Following the meeting, Nanda stated that a dedicated working group will be set up to engage with SEBI and craft actionable recommendations. “It is important for SEBI to ensure that investments are safe. As the accounting regulator, ICAI will support efforts to create a fraud-resilient environment,” he said.
From Informal Whistleblowing to a Structured Reporting Role for CAs
While some chartered accountants have already acted as informal whistleblowers in past cases, ICAI and SEBI now seek a structured, transparent, and protective framework that encourages responsible disclosure of fraudulent activity by auditors. This could be instrumental in reducing the time lag between the onset of fraudulent activity and regulatory detection.
SEBI believes that early intervention can prevent large-scale damage to companies and protect thousands of public shareholders. In most historical fraud cases, investigations began years after the misconduct started, often when it was already too late to avert financial and reputational harm.
According to insiders, ICAI will also analyze historical fraud data to identify recurring patterns and risk indicators. This research-driven approach aims to equip auditors with better tools and training to detect manipulation at the earliest possible stage.
SEBI has also acknowledged the importance of the auditor-management dynamic. If company officials refuse calls or fail to provide documentation, auditors must now treat such behavior as a potential red flag.
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Cross-Agency Cooperation and Notable Case Triggers the Reform
The move comes against the backdrop of recent high-profile frauds. In the case of Gensol Engineering, SEBI detected that the promoters transferred ₹382 crore to multiple entities during FY23 and FY24, but the fraud went undetected for over two years. Such delays have repeatedly undermined investor trust and raised questions about regulatory agility.
Other government agencies are also ramping up enforcement efforts. The Serious Fraud Investigation Office (SFIO), under the Ministry of Corporate Affairs, is currently investigating more than 70 corporate fraud cases. Similarly, the National Financial Reporting Authority (NFRA) continues to examine auditor roles in fraudulent practices.
ICAI’s plan to establish a research and advisory group seeks to complement these efforts. The group will identify specific intervention points where auditor vigilance and SEBI oversight can intersect to stop fraud before it spirals.
