ICAI calls for a pause in audit standards revision process by NFRA

The difference of opinion between ICAI and NFRA on the revision of auditing standards in India has come to the fore once again

The Institute of Chartered Accountants of India (ICAI) on Friday called for a pause in the ongoing revision process of auditing standards in India.

This announcement comes just days after the National Financial Reporting Authority (NFRA) brought out revised Standards on Auditing 600 (SA 600) for public consultation earlier this week, aligning them with International Standards on Auditing (ISA 600). NFRA is the auditing and accounting supervision authority of India.

Under the revised standards, a Group Auditor is ultimately responsible for audit of group financial statements. They would also evaluate the component auditor’s communications and the adequacy of their work.

 

In a statement on Friday, ICAI said it held its council meeting to discuss SA 600 on September 17.

"The ICAI Council, in its meeting held on September 17, 2024, expressed its view that while the current SA 600 has been effective and has stood the test of time, there is room for further review and strengthening to better serve the public interest," it said.

The Council tasked the Auditing and Assurance Standards Board (AASB) with reviewing the standard and initiating the process for public exposure, as has been ICAI’s practice.

ICAI said that while these discussions were underway, NFRA unexpectedly released the revised guidelines.

As per ICAI’s practice, the Institute typically sets up a group to examine all issues and releases an Exposure Draft of the standard for public comments.

After considering public comments and making necessary changes, the AASB submits its report to the Council. Following deliberations, the Council forwards its recommendations to NFRA.

"This process could not be complied with in this instance as NFRA has already issued the Exposure Draft for public comments, even while the Council was discussing this matter for review," the statement said.

"Therefore, ICAI calls for a pause in the revision process to allow for a comprehensive review and discussion with all relevant stakeholders to ensure that any changes are in the best interest of the profession and the public," ICAI added.

Earlier, NFRA released revised standards for public consultations, stating that the inherent complexity of group structures cannot be handled by the 2002 version of SA 600 currently practised in India.

Internationally, these standards were revised in 2009.

ICAI has expressed concerns that the revised standards could "make the survival of small firms difficult." It also believes that the international definition of a component auditor is not relevant to India.

"The unique regulatory architecture and professional environment in India necessitate careful consideration of domestic needs and circumstances before transplanting overseas standards," it said.

NFRA, however, believes that the revision is necessary to "safeguard public interest and investor protection." 

"The audit of around 98 per cent of the companies may not be impacted by the revision in the Standard. In other words, there may not be any significant impact on the number of audits done by the small and medium audit firms, it said while releasing the revised guidelines earlier this week.

The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) have already given their in-principle agreement on the need to revise the existing standards.