ICAI bats for division of audit onus; signals truce with NFRA after a year
New Delhi, Dec 15, 2025
Synopsis
The Institute of Chartered Accountants of India is set to propose a clear division of responsibility between principal auditors of corporate groups and those auditing subsidiaries. This move aims to ensure financial statement quality and establish accountability. The recommendations will be submitted to the corporate affairs ministry and the National Financial Reporting Authority.
The Institute of Chartered Accountants of India (ICAI) is set to propose a clear division of responsibility between the principal auditor of a corporate group and those auditing subsidiaries without compromising on the quality of financial statements, people aware of the details said. It would also prescribe a framework for fixing accountability if things go wrong.
The apex accountants' body will soon submit its latest recommendations to the corporate affairs ministry and the National Financial Reporting Authority (NFRA) for the revision of a standard that had led to its rift with the NFRA last year. Proposing a revamp of the standard of auditing (SA) 600 in sync with global rules, NFRA had suggested to the ministry that the principal auditor be responsible for financial statements of the entire group and also assess the competence of component auditors, who usually handle books of subsidiaries.
The ICAI had opposed the move on the ground that it would lead to a concentration of work with large audit firms.
Experts Suggested Revision
The move will hurt small and mid-sized firms that are the backbone of the Indian audit ecosystem, ICAI said.
But the NFRA reckoned its proposal would further improve audit quality by bolstering accountability for audit work.
The institute’s apex decision-making body this week approved its recommendations on the SA600 revision, its president Charanjot Singh Nanda had said on Thursday, without divulging details. The institute had set up an expert group to suggest revisions.
ET had reported on October 31 that the ICAI felt its concerns were overlooked by the NFRA—the audit regulator for mainly listed companies—when the latter prescribed the revised SA600 to the ministry last year.
So, the institute would now submit its own recommendations and leave it to the ministry to decide which one it wishes to notify.
PROPOSED CHANGES TO SA600
The accountants’ body will propose a framework under the revised SA600 that would govern the interactions between the principal and other auditors during the entire audit process, said the people cited earlier.
It sets clear rules for reliance on the work of other auditors by the principal auditor, and establishes accountability parameters for both.
There would be greater requirement of written instructions to bolster transparency and professional judgment by both auditors. The ICAI’s prescription will also enable the principal auditor, where necessary, to review records of group subsidiaries, perform direct audit procedures and issue a modified opinion.There would also be a heightened focus on a smooth flow of critical information between the principal auditor and the other auditor.
[The Economic Times]
