NFRA recommends revising audit standards in line with global norms

The National Financial Reporting Authority (NFRA) on Tuesday recommended the revision of Standards on Auditing (SA) 600 to hold the group auditor ultimately responsible for the audit, in line with the global Standard ISA 600, following its two-day board meeting.

 

The authority also approved the other 33 Auditing Standards in line with corresponding Global Standards. The standards are recommended to be effective from April 1, 2026, upon the approval of the government, the NFRA said in a press statement.

 

“This demonstrates how various regulators can come together and work to achieve this great national task. It is an example of strong inter-regulatory coordination, which we are all very proud of. It is a historic moment for auditing and corporate governance in India,” NFRA Chairman Ajay Bhushan Pandey told Business Standard.

 

Three representatives of the Institute of Chartered Accountants of India (ICAI) disagreed with the revisions recommended in SA 600 and three other proposals concerning changes in Standard on Quality Control, Quality Management, as well as SA 800, which deals with special consideration audits.

 

The Institute also disagreed with conforming adjustments under SA 600 (Revised) related to the liability of joint auditors under SA 299, for consistency, by making the joint auditors jointly and severally responsible, in line with standard international practices.

 

The revisions in SA 600 are proposed to be applicable only to public interest entities, except public-sector banks, public-sector undertakings (PSUs), including public-sector insurers and their branches. This would cover a total of 17,450 listed holding companies and their subsidiaries, including unlisted ones, under the revised standards. The group auditor of these companies, under the revised standards, would also evaluate the component auditor’s communications and the adequacy of their work.

 

Of the 11 members of NFRA attending the meeting, eight from the Comptroller and Auditor General of India, Reserve Bank of India, Securities and Exchange Board of India, two independent experts, two full-time members of NFRA, and the chairperson of NFRA supported these proposals.

 

“In line with global practices in countries such as the UK, Australia, and Singapore, the authority also decided to recommend to the central government to name the Auditing Standards as IndSAs,” the NFRA said.

 

The revised standards (SA 600) deal with special considerations that apply to an audit of group financial statements. The revised standards hold that the group auditor is ultimately responsible for the audit. The group auditor, under the revised standards, would also evaluate the component auditor’s communications and the adequacy of their work.

 

It cited examples of its own orders in matters including Reliance Capital, Reliance Home Finance, Reliance Commercial Finance Limited — together with an alleged fraud of Rs 29,000 crore.  Also, other examples are — Coffee Day Global Limited, with an alleged fraud of Rs 3,500 crore, and Dewan Housing and Finance Limited, with alleged fraud of Rs 34,000 crore. The NFRA highlighted: “A mechanical reliance was placed by the principal auditor on the work of the other auditor without assessing the special circumstances that required additional audit procedures.”

 

The ICAI said the existing SA 600 Standard has all the power and, if required, can be strengthened but aligning the framework with ISA 600 is not desirable. Of the total 40 standards approved by NFRA, 38 were accepted as recommended by the ICAI. However, the ICAI has expressed strong concerns over SA 600 (revised) and SA 299 (Revised).

 

In SA 299 (Revised) approved by the NFRA related to “Joint Audit of Financial Statements,” the ICAI has expressed concerns that these changes could lead to unnecessary duplication of work and increased costs in joint audits. The institute suggested that public consultation on this standard is required as it has substantially changed.