NEW DELHI: The National Financial Reporting Authority (NFRA), supported by RBI and Sebi, urges the Institute of Chartered Accountants of India to fill a critical gap in the Accounting standardwhich was completed over two decades ago with the revised international standards.
On Monday, the NFRA Board will discuss an urgent update of S-A 600 with the International Standard on Auditing 600, or ISA 600, which was revised in 2009 and 2023 after it found deviations in several cases it handled, from Reliance Capital to IL&FS, DHFL and Café Coffee Day.
The agency responsible for supervising Auditor and auditing firms for large and listed companies, has taken on the task of updating the standards in order to Regulatory gap Sources told TOI that talks began in May, adding that SA 600 had proved particularly controversial.
While a group of auditors opposing the move argue that small businesses will be affected, regulatory sources said this is a misconception and in any case, the interests of small investors are paramount. “The Reliance Capital case is an eye-opener. The restructuring has to be done in the public interest as it affects millions of investors who depend on the audited accounts to invest their hard-earned money,” a source familiar with the discussions told TOI.
In any case, the revised standards will be adopted after a public debate and will be implemented gradually, starting with listed companies.
Based on an analysis of cases handled by the NFRA, regulators believe that provisions in SA 600 such as “the principal auditor shall not be responsible for work entrusted to other auditors except in circumstances which should have aroused his suspicion” or “the principal auditor shall be entitled to rely on the work of others provided he exercises due skill and care and has no reason to believe that he should not have relied on it” give auditors wide discretion. “This has led to audit errors and compromised the quality of the audit. They are also not in line with the provisions of the Companies Act,” a source said.
Likewise, the review of the working papers of the sub-group auditors by the main auditor is an important requirement of the international standard, as it helps the group auditor to assess the appropriateness of the audit work with regard to the risks involved.
On Monday, the NFRA Board will discuss an urgent update of S-A 600 with the International Standard on Auditing 600, or ISA 600, which was revised in 2009 and 2023 after it found deviations in several cases it handled, from Reliance Capital to IL&FS, DHFL and Café Coffee Day.
The agency responsible for supervising Auditor and auditing firms for large and listed companies, has taken on the task of updating the standards in order to Regulatory gap Sources told TOI that talks began in May, adding that SA 600 had proved particularly controversial.
While a group of auditors opposing the move argue that small businesses will be affected, regulatory sources said this is a misconception and in any case, the interests of small investors are paramount. “The Reliance Capital case is an eye-opener. The restructuring has to be done in the public interest as it affects millions of investors who depend on the audited accounts to invest their hard-earned money,” a source familiar with the discussions told TOI.
In any case, the revised standards will be adopted after a public debate and will be implemented gradually, starting with listed companies.
Based on an analysis of cases handled by the NFRA, regulators believe that provisions in SA 600 such as “the principal auditor shall not be responsible for work entrusted to other auditors except in circumstances which should have aroused his suspicion” or “the principal auditor shall be entitled to rely on the work of others provided he exercises due skill and care and has no reason to believe that he should not have relied on it” give auditors wide discretion. “This has led to audit errors and compromised the quality of the audit. They are also not in line with the provisions of the Companies Act,” a source said.
Likewise, the review of the working papers of the sub-group auditors by the main auditor is an important requirement of the international standard, as it helps the group auditor to assess the appropriateness of the audit work with regard to the risks involved.
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