Expressing surprise at the National Financial Reporting Authority’s (NFRA) 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 for a comprehensive review. In a press statement, ICAI sought a discussion with all relevant stakeholders to ensure that any changes are in the best interest of the profession and the public.
NFRA on Tuesday had brought out revised Standards on Auditing 600 (SA 600) for public consultation to address what it had found to be “the severely deficient quality and serious lack of due diligence” in group audits in India.
In its council meeting held on the same day, ICAI had said that the current Standards on Auditing 600 had been effective and had stood the test of time, but there is room for further review and strengthening to better serve the public interest.
Stating its apprehensions, ICAI said, “The unique regulatory architecture and professional environment in India necessitate a careful consideration of domestic needs and circumstances before transplanting overseas standards.”
The institute said that a group auditor, in the guise of overseeing the quality of work of smaller firms auditing subsidiary companies, may persuade the managements to replace the small audit firms with his own firm, leading to the concentration of 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, having taken legal opinion on the matter, is of the view that it can on its own bring out the revised standards for the companies that 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 the concentration of audits with a few big firms, saying 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. Under the revised standards, the group auditor would also evaluate the component auditor’s communications and the adequacy of their work.
First Published: Sep 20 2024 | 5:20 PM IST
