India may soon notify new audit standards after prolonged regulatory tussle
Apr 3, 2026
Synopsis
India's corporate affairs ministry is set to announce new audit rules. These changes will bring Indian standards in line with global practices. The ministry is consulting with the National Financial Reporting Authority and the Institute of Chartered Accountants of India. This move aims to resolve regulatory disagreements and finalise auditing and quality management standards for implementation.
The corporate affairs ministry is likely to soon notify a new audit regime, largely aligning Indian rules with global benchmarks and ending uncertainties over the adoption of a key standard that had created a rift between the country’s two audit regulators.
On Wednesday, the ministry held a meeting with senior functionaries of the National Financial Reporting Authority (NFRA) and the Institute of Chartered Accountants of India (ICAI) to deliberate on the standards before notification, people aware of the matter said.
“The government is the sole and final authority to notify audit standards. It’s engaged with both NFRA and the institute to finalise the new standards for subsequent notification,” said one of the people.
NFRA had in November 2024 recommended about 40 auditing standards to the ministry for consideration, proposing implementation from April 2026.
The Regulatory Tussle
The Companies Act empowers the government to notify auditing rules after considering standards recommended by the ICAI and examined by the NFRA.
The ICAI had initially finalised the new audit standards and submitted them to NFRA for scrutiny. Both sides agreed on most of them, except Standard of Auditing (SA) 600 and certain consequential changes to other rules.
The NFRA’s revised SA 600 proposes making the principal auditor responsible for the entire group’s financial statements. The ICAI opposed the move, saying it would favour large audit firms at the cost of small and mid-sized ones, a view refuted by the NFRA.
The NFRA later recommended the standards, including its version of the revised SA 600, to the ministry.
The ICAI, maintaining its objections were overlooked, submitted its own version of the revised SA 600 to the ministry for consideration.
Quality Management Standards
The ministry and the regulators are also discussing the treatment of Standards on Quality Management (SQM 1 and SQM 2) for audit firms, the people cited earlier said.
The NFRA had earlier argued that SQM 1 and SQM 2 were auditing standards that required to be notified by the government based on its recommendations.
The ICAI, however, had said these were not auditing standards but quality management frameworks that set standard operating procedures for accountancy firms, and therefore fell within its remit to notify, as before the NFRA’s creation in 2018.
The institute had notified SQM 1 and SQM 2 in late 2024 to replace existing quality control standards from April 1, 2026, which was opposed by the NFRA. However, the institute on Tuesday deferred their implementation until further announcement.
The ministry's notification on audit standards, when issued, is expected to settle this issue as well.
After issuing the SQMs in late 2024, the institute had cited the Companies Act, 2013, to say that the Engagement and Quality Control and Quality Management Standards comprise a total of 47 standards, 35 of which cover auditing standards that come under the NFRA.
The remaining 12 standards—consisting of SQMs, standards on specialised areas, review engagements, assurance engagements and related services—come under the ICAI’s remit, it had said. Before the NFRA’s creation in 2018, the ICAI used to firm up even auditing standards for all companies and suggest these to the government for notification.
[The Economic Times]
