NFRA proposes tweaks in audit standards, writes to government

NFRA has also asked the government to notify the revised standard of audit 600 (or SA 600), a standard that deals with group audits, including when component auditors are involved.

Written by Manu Kaushik

November 13, 2024 01:00 IST

In September, NFRA had floated a consultation paper to seek public comments on the revised SA 600. (Image/Official Site)

The National Financial Reporting Authority (NFRA) after a two-day board meeting here recommended a bunch of revisions to the auditing standards to the government on Tuesday. The recommendations include replacing the existing standard on quality control as standard of quality management (SQM 1 and SQM 2).

The SQM 1 deals with a CA firm’s responsibilities to design, implement and operate a system of quality management for audits or reviews of financial statements. SQM 2, on the other hand, talks about the appointment and eligibility of the engagement quality reviewer and the review process.

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Recently, the Institute of Chartered Accountants of India (ICAI) had revised SQM 1 and SQM 2 to match the international standards. Though the NFRA has called the ICAI’s revisions “legally void”.

NFRA has also asked the government to notify the revised standard of audit 600 (or SA 600), a standard that deals with group audits, including when component auditors are involved. This standard is proposed to be applicable to public interest entities (PIEs) except public sector banks, PSUs (including public sector insurance companies) and their branches.

In September, NFRA had floated a consultation paper to seek public comments on the revised SA 600. ICAI has opposed the revised SA 600 stating that it will lead to concentration of business in the hands of few top audit firms. In addition, the NFRA board has asked the government to notify the adjustments made in the standard of audit 299 (or SA 299) wherein the joint auditors will be jointly and severally responsible for any audit lapses. A joint audir involves two or more independent audit firms working on a company’s financial statements. The Reserve Bank of India (RBI) requires financial entities with asset size of over Rs 15,000 crore to have their statutory audit conducted under the joint audit of a minimum of two audit firm.