The correct answer is option 'C', the Institute of Chartered Accountants of India (ICAI). The ICAI is the regulatory body for auditors in India and is responsible for formulating rules and regulations that auditors must comply with. Here is a detailed explanation of why the ICAI is the correct answer:

1. Role of the Institute of Chartered Accountants of India (ICAI):
The ICAI is a statutory body established by an Act of Parliament to regulate the profession of Chartered Accountancy in India. It is responsible for setting accounting and auditing standards, promoting professional ethics, conducting examinations, and ensuring compliance with the regulations.

2. Formulation of Auditing Standards:
The ICAI formulates and issues auditing standards that provide guidance to auditors in conducting audits. These standards are based on international best practices and are designed to ensure that audits are performed with due professional care and in compliance with applicable laws and regulations.

3. Compliance with Auditing Standards:
Auditors are required to comply with the auditing standards issued by the ICAI while conducting audits. These standards provide a framework for auditors to plan and execute their audit procedures, assess the effectiveness of internal controls, gather sufficient and appropriate audit evidence, and express their opinion on the financial statements.

4. Monitoring and Enforcement:
The ICAI actively monitors the compliance of auditors with the auditing standards through various mechanisms such as inspections, quality reviews, and disciplinary proceedings. It has the authority to take disciplinary action against auditors who fail to comply with the standards or engage in professional misconduct.

5. Continuing Professional Development:
The ICAI also plays a crucial role in the continuing professional development of auditors. It organizes training programs, seminars, and workshops to enhance the knowledge and skills of auditors and keep them updated with the latest developments in auditing and accounting.

In conclusion, the Institute of Chartered Accountants of India (ICAI) formulates rules and regulations that auditors must comply with. It sets auditing standards, monitors compliance, and promotes professional ethics in the auditing profession. Auditors are required to adhere to these standards to ensure the quality and integrity of financial reporting in India.