ICAI at loggerheads with NFRA on proposed revision of audit standards

Expressing surprise at the National Financial Reporting Authority’s (NFRA’s) proposal for revising auditing standards, the Institute of Chartered Accountants of India (ICAI) on Friday called for a pause in the revision process to allow a comprehensive review.

In a press statement, ICAI has sought a discussion with all relevant stakeholders to ensure that any changes are in the best interest of the profession and public.

NFRA on Tuesday had brought out revised Standards on Auditing 600 (SA) for public consultations to address what it found to be “the severely deficient quality and serious lack of due diligence” in group audits in India. 

ICAI, in its council meeting held on the same day, had said that the current Standards on Auditing 600 has been effective and stood the test of time. But it said there is room for further review and strengthening to better serve public interest. 

Stating its apprehensions, ICAI said, “The unique regulatory architecture and professional environment in India necessitates a careful consideration of domestic needs and circumstances before transplanting overseas standards.” 

The institute said that a group auditor in the guise of overseeing quality of work of smaller firms auditing subsidiary companies may persuade managements to replace these audit firms with his own firms. This would lead to concentration of the audit work in the hands of a few firms. 

“ICAI believes it is neither possible nor desirable for the group auditor to assess or exercise control over the decisions of a component auditor who is equally qualified,” the press statement said. 

According to sources, NFRA has taken legal opinion on the matter. It is of the view that it can on its own bring out the revised standards for companies which fall under its jurisdiction. 

“It is NFRA’s responsibility to update these standards because it has answerability too,” the source said. 

In its note for public consultation, NFRA had addressed ICAI’s concerns on concentration of audit with few big firms.

It said that the total number of entities under the NFRA domain and their subsidiaries together account for only about 1.8 per cent of the total active companies in the country. 

“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 small and medium audit firms,” NFRA said. 

The revised standards hold that the group auditor is ultimately responsible for the audit.

The group auditor, under revised standards, would also evaluate the component auditor’s communications and the adequacy of his work.

What’s the contention?
 

ICAI believes current Standards on Auditing 600 effective and has stood the test of time
 

ICAI concerned that the move to revise norms may lead to concentration of the audit work in the hands of few firms
 

NFRA says the number of entities under the NFRA domain and their subsidiaries account for only 1.8% of the total active companies

According to sources, NFRA can on its own, bring out the revised standards for the companies, which fall under its jurisdiction