NFRA may take up revision of 35 audit standards next week

New Delhi: The National Financial Reporting Authority (NFRA) will likely deliberate on the revision of all the 35 standards on auditing (SA)-including the SA600 for which it has issued draft norms-and the issues that have sparked its tussle with the Institute of Chartered Accountants of India (ICAI) in its next board meeting on November 11 and 12, people aware of the development said.

NFRA will also seek to review the standards on quality management (SQMs) of audit firms and 16 "consequential" changes in the audit standards, already floated by the ICAI on October 14.

The meeting of the 12-member NFRA board is expected to be a stormy affair, as it has three representatives from the ICAI who would push for a pause in the upgrade of the SA600 and also assert the institute's right to issue the SQMs, one of the people told ET.

Raging tussle
In the last NFRA board meeting in August, senior ICAI representatives opposed the revision in the SA600 to make the principal auditor of a corporate group responsible for the entire group's financial statements, among other stipulations.

This, ICAI reckons, would give adequate power to the principal auditors-often belonging to large accounting firms-to influence the company management and get the component auditors, who are mainly from small and mid-sized ones, replaced with their own people, leading to a concentration of audit work with a few big firms.

The institute has also questioned the relevance of the SA600 revamp in the Indian context.

Component auditors usually conduct the audit of subsidiaries of a corporate group.

NFRA, however, went ahead with the plan and issued the draft norms on it and would seek to finalise the SA600 revision in the next meeting, the people said.

The audit regulator has been backed by representatives of other watchdogs, such as the Reserve Bank of India and Securities and Exchange Board of India, and the Comptroller and Auditor General on its board to align the SA600 with the global norms.

NFRA has also asserted that the audit of more than 98% of the active companies in India won't be impacted by the new rules.

NFRA also objected to the ICAI's issuance of SQMs on October 14, saying these were linked to audit standards, so they should be notified by the government upon its recommendations.

However, in a letter to the corporate affairs ministry last month, the ICAI stressed that these quality management standards are not auditing standards, so it's within its right to issue them without NFRA's clearance.