Worried about audit getting concentrated in the hands of a few big firms owing to revision in auditing standards, the Institute of Chartered Accountants of India (ICAI) has urged the Ministry of Corporate Affairs (MCA) to reconsider the recent amendments proposed by the National Financial Reporting Authority (NFRA).
The new standards will be effective from April 1, 2026, subject to the approval of the corporate affairs ministry.
The Solicitor General of India, in an opinion to the NFRA, has clarified that the authority to issue binding standards or guidelines for audit lies exclusively with the government, specifically the corporate affairs ministry. This legal opinion clarifies that neither the NFRA nor the ICAI has the power to independently set enforceable standards.
According to the opinion, the ICAI can only make recommendations, which are subject to government approval. It further stated that ICAI cannot take direct action against audit firms, limiting its jurisdiction to Chartered Accountants (CAs) alone.
The NFRA, after its 18th board meeting last Tuesday, had recommended revision in 38 out of 40 standards on auditing, including the SA 600 and SA 299, which deal with group and joint audit, respectively.
The CA body had argued that directly adopting global standards, such as amendments to Standards of Audit (SA) 600 and SA 299, which deal with group and joint audit, respectively, may not align with India’s unique economic and regulatory environment. The changes could adversely impact small and medium-sized CA firms, and lead to the concentration of audits in the hands of a few large firms, ICAI stated. This would be detrimental to the competitiveness and diversity of the auditing profession in India, ICAI added.
The SA 600 aligns with the International Standard on Auditing (ISA) 600. The revised standard places full responsibility for the group’s entire financial statements on the group auditor, which the ICAI argued is impractical in India’s complex audit landscape.
The ICAI believes the existing SA 600 standard is sufficient with only minor updates and cautions that aligning with the international standard may overlook local conditions and potentially overburden auditors.
The NFRA defended its proposed revisions to SA 600, pointing to past cases of deficient group audit quality and auditor negligence, such as the Satyam Computers scandal, which led to the establishment of an independent audit regulator.
In Satyam, the ICAI could only sanction individual auditors, not audit firms. The Companies Act 2013 subsequently mandated NFRA’s oversight and approval of auditing standards before government notification, superseding ICAI’s previous role.
The NFRA argued the changes are essential to counter corporate fraud and audit failures and enhance accountability in group audits.
Besides SA 600, the ICAI raised concerns over SA 299 and shifts from ICAI’s model of divided responsibilities among joint auditors to one that emphasises shared responsibility and mandatory cross-review of each auditor’s work.
This change could lead to unnecessary duplication of work and increased costs, particularly in complex joint audits, the ICAI said.
Speaking to Business Standard, NFRA Chairperson Ajay Bhushan Pandey said, “Misplaced anticipation about some unknown problem cannot stop us from aligning to global standards and work towards greater transparency and investor protection.”
He said even if there were remote examples of such cases those could be remedied by the government by putting a cap on the number of audits a group auditor could do for subsidiaries.
“For a Viksit Bharat, India needs to have global accounting and auditing standards. We cannot afford to have standards that are inferior,” Pandey said.
According to a senior ICAI official, requesting anonymity an overhaul of the standards is not required. India as a nation should not follow global norms, India requires customised solutions, mirroring its diversity and complexities.
