 "ICAI cannot issue standards on quality management: SG Tushar Mehta to NFRA")
The Institute of Chartered Accountants of India (ICAI) cannot independently issue standards on quality management (SQMs) or amend audit norms, Tushar Mehta, the Solicitor General of India, told the National Financial Reporting Authority (NFRA), according to a report by The Economic Times. NFRA had sought the SG's opinion following the institute's introduction of new SQMs to amend auditing norms in October.
SG Mehta clarified that such actions would require government notification to be approved.
NFRA highlighted that this clarification supports the authority's position, which disputes ICAI's jurisdiction over these matters, the report added. In a detailed 24-page communication, the Solicitor General stated that ICAI’s powers under the proviso to Section 143(10) of the Companies Act are transitional and do not extend to creating or notifying SQMs or modifying existing standards of auditing (SAs).
ICAI introduces SQM1, SQM2 in auditing norms
This legal assessment comes in the wake of ICAI's recent move to introduce SQM1 and SQM2, along with 16 related changes to auditing norms on October 14. These new standards focus on ensuring quality control within accountancy firms.
SQM1 outlines the design and operation of quality management systems for audits and reviews of financial statements.
SQM2 pertains to engagement quality reviews, including the eligibility and responsibilities of reviewers.
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The NFRA had previously raised concerns about these developments, which it deemed contrary to the legislative framework, particularly as NFRA pushes to align India’s audit standards with global benchmarks.
What does the law say?
Section 143(10) of the Companies Act empowers the government to prescribe audit standards based on ICAI's recommendations, subject to NFRA’s consultation and review. However, until the Centre officially notifies these standards, those specified by ICAI are recognised on a temporary basis.