MCA considers global audit norms placing responsibility on group auditors

Official sources said that ICAI has expressed its concerns over the introduction of SA600 to the MCA as well

Nearly two years after the National Financial Reporting Authority (NFRA) proposed adopting global auditing standards that place greater responsibility on group auditors, the Ministry of Corporate Affairs (MCA) is in advanced consultation stages and is likely to decide soon, official sources said.

 

The proposal gained significance following the Rajesh Exports matter, in which statutory auditors and the company’s audit committee came under scrutiny over the alleged failure to independently verify revenues reported by overseas subsidiaries. NFRA has initiated an investigation into the alleged financial misstatements.

 

NFRA recommended the revised Standard on Auditing (SA) 600 to the government in November 2024 along with 33 other auditing standards, despite opposition from the Institute of Chartered Accountants of India (ICAI). NFRA had proposed that the revised standards take effect from April 1, 2026, subject to government approval.

 

SA 600 seeks to align India’s audit framework with international standards by making the group auditor ultimately responsible for the audit opinion on the consolidated financial statements, including work carried out by component auditors of subsidiaries.

 

According to official sources, ICAI reiterated its objections to the MCA, arguing that it is neither feasible nor desirable for a group auditor to exercise control over the decisions of a component auditor, who is independently qualified and professionally accountable.

 

The institute also opposed revisions to SA 600 and three other proposals relating to quality management and special consideration audits during NFRA’s board deliberations. It also disagreed with proposed changes to SA 299 that would make joint auditors jointly and severally responsible, in line with international practice.

 

NFRA has proposed that the revised SA 600 apply only to Public Interest Entities, excluding public sector banks, public sector undertakings, including public sector insurance companies, and their branches. The revised framework would cover around 17,450 listed holding companies and their subsidiaries, including unlisted entities. It would also require group auditors to evaluate communications from component auditors and assess the adequacy of their audit work.

 

The proposals were backed by eight of NFRA’s 11 members, including representatives of the Comptroller and Auditor General of India, the Reserve Bank of India, the Securities and Exchange Board of India, two independent experts, two full-time NFRA members and the NFRA chairperson.

 

In support of the changes, NFRA cited its investigations into cases involving Reliance Capital, Reliance Home Finance, Reliance Commercial Finance, Coffee Day Global and Dewan Housing Finance Corporation, arguing that principal auditors had placed “mechanical reliance” on the work of component auditors without undertaking additional audit procedures where warranted.