ICAI document to tighten corporate fraud detection norms by Nov-end; may propose Companies Act changes

The research work is being carried out by a dedicated group formed by ICAI in cognizance with SEBI.

The Institute of Chartered Accountants of India (ICAI) is set to release by end-November a comprehensive research document aimed at strengthening early detection and regulatory oversight of corporate and IPO-related frauds. The initiative will examine systemic loopholes, address concerns around related-party transactions, and recommend mechanisms to plug gaps in the existing legal and regulatory framework.

“ICAI is going to launch by November end a new document for early detection of frauds in corporates and IPOs. The document will focus on analysing issues in frauds and fixing loopholes,” an ICAI official said.

Related Party Transactions

“It will also deal with related party transaction issues. The research paper may suggest that the company board, promoter, independent auditor, forensic auditor all get responsibilities fixed on them for any fraud. The paper may also suggest an amendment in the Companies Act to fix these loopholes,” sources told Moneycontrol.

The research work is being carried out by a dedicated group formed by ICAI in cognizance with SEBI. “It is a group which is formed by ICAI in cognizance with SEBI with regards to making out a research paper on early signals of corporate frauds,” the ICAI official said. He added that the group’s scope covers both primary (IPO) and secondary markets.

“What has been happening is a lot of new IPOs have been coming, a lot of money siphoning is happening. So we pulled out close to around 64 orders of SEBI and we are analysing what kind of issues have triggered in corporatisation, the kind of frauds which have gone through and what should be the loophole fixing mechanism,” the official explained.

He added that the research paper will use case laws and SEBI orders to illustrate patterns of diversion and manipulation. “It is going to be a research paper for all the people. How people have diverted funds, that is something which is going to come out of it,” he said.

Accountability

According to sources, the paper is expected to recommend fixing accountability across the chain – from boards and promoters to auditors – to ensure clear responsibility in cases of fraud. It may also propose amendments to the Companies Act to close legal gaps that currently allow fraudulent activities to go undetected or unpunished.

This initiative builds on ICAI’s broader engagement with regulators to strengthen early warning systems. The move comes against the backdrop of increased regulatory scrutiny on corporate governance failures and frauds. Regulators have been tightening disclosure norms and accountability frameworks, while auditors have faced questions over lapses in detection of irregularities in several listed entities.

What is the purpose of the ICAI research paper?

The document aims to create a structured framework for early detection of corporate and IPO-related frauds by identifying loopholes in existing systems and proposing solutions.

Will the paper lead to changes in law?

Yes, the paper is likely to suggest amendments to relevant provisions of the Companies Act to strengthen accountability and close legal loopholes. Any legislative changes would require separate approval by the government and Parliament.

What is the significance of analysing 64 SEBI orders?

The group has pulled out and is studying 64 enforcement orders issued by SEBI to identify common patterns of manipulation, diversion of funds, and misuse of related-party transactions. These findings will inform the recommendations in the paper.