ICAI looks to set a brand new standard
New Delhi, Oct 31, 2025
Synopsis
The Institute of Chartered Accountants of India plans to submit its own revised auditing standard to the government. This move could reignite a dispute with the National Financial Reporting Authority over SA600. The ICAI believes its concerns were overlooked by the NFRA. The government will ultimately decide which standard to notify.
The Institute of Chartered Accountants of India (ICAI) is planning to submit its recommendations to the government on the revision of an auditing standard that had led to its rift with the National Financial Reporting Authority (NFRA) last year, potentially reigniting the tussle, said people familiar with the matter.
The ICAI, the people said, feels its concerns were overlooked by the NFRA, the audit regulator for mainly listed companies, when the latter prescribed the revised Standard of Auditing (SA) 600, in sync with global rules, to the corporate affairs ministry late last year.
The apex accountants' body opposed the NFRA's recommendations on the revised SA600, arguing any such move would mainly benefit large audit firms at the cost of small and mid-sized ones that are the backbone of the Indian audit ecosystem. But the NFRA believed the revised standard would further bolster audit quality in India.
The ICAI now intends to submit its own revised SA600 standard to the ministry and leave it to the government to decide which one it wishes to notify, two people told ET.
The institute has set up a study group to firm up revised SA600 standard, they said.
Section 143 (10) of the Companies Act empowers the government to notify audit rules, upon considerations of all the standards recommended by the ICAI and duly examined by the NFRA.
As per rules, the ICAI had initially submitted dozens of revised Indian audit standards prepared by it to the NFRA for examination.
Feels NFRA overlooked its concerns last year; to submit its own revised SA600 with MCA for consideration
While the NFRA endorsed most of these suggestions, it differed with the institute's contention mainly on the crucial SA600 revision and recommended its own version of it, along with other revised standards, to the government in November 2024 for consideration and subsequent notification. The NFRA suggested that the new audit regime with all the revised standards be applicable from April 2026. However, the government has yet to notify these standards.
Points of contentionOn the revision of the SA600, the ICAI had opposed the NFRA's proposal to make the principal auditor of a corporate group responsible for the entire group's financial statements, and consequential changes in the SA299 that deals with joint audits of financial statements of companies.
It had also opposed the NFRA's proposal that group auditors assess the competence of component auditors, who usually audit subsidiaries of a corporate group. The ICAI had said that small and mid-sized firms are generally entrusted with the audit of subsidiaries. The group auditor "in the guise of overseeing the quality of their work and under the pretext of ensuring uniform quality may persuade the management to replace the small audit firms of subsidiary companies with that of his own firms, leading to a concentration of the audit work in the hands of few (larger) firms", it had argued.
The ICAI had also argued that "it would be unfair and unjust to fasten the liability on the group auditor alone, ignoring the managements of the holding company" in case of corporate frauds.
"The unique regulatory architecture and professional environment in India necessitates a careful consideration of domestic needs and circumstances before transplanting overseas standards," the institute said. For its part, the NFRA had dismissed fears of audit work concentration. In a note, it had suggested that the audit of more than 98% of 1.746 million active companies in India wouldn't be impacted by the new rules, which would apply to only listed companies, banks and insurers, barring the state-run ones. But experts had pointed out that the 2% of corporate entities that were proposed to be covered are usually the larger ones.
The NFRA had wanted greater responsibility for group auditors, citing its own assessments of large corporate frauds in India where the group auditors had often tried to pass the buck to others for misleading financial statements. It also wanted swift alignment of domestic standards with the global ones to plug loopholes in the extant system.
[The Economic Times]
