The CA Institute on Friday known as upon the Nationwide Monetary Reporting Authority (NFRA) to “pause” the revision means of a key auditing commonplace (SA600 -Utilizing the Work of One other Auditor) that ruled conduct of Group audits within the nation.
This pause to revision course of (being undertaken by NFRA) is critical to permit for a complete overview and dialogue with all related stakeholders to make sure that any modifications are in the very best curiosity of the occupation and public, the Institute of Chartered Accountants of India (ICAI) mentioned in an announcement right here.
ICAI has additionally expressed “shock” over the NFRA transfer to situation a session paper on revision of SA600 the identical day (September 17) when the Central Council of the CA Institute met to start out the overview of SA600.
‘Room for additional overview’
ICAI additionally famous that the Central Council had in its assembly on September 17, 2024, expressed that whereas the present SA 600 has been efficient and has stood the check of time, there may be room for additional overview and strengthening to raised serve public curiosity.
The Council has tasked the Auditing and Assurance Requirements Board (AASB) with this overview and began the method of reviewing the usual for publicity, as has been the observe in ICAI, in keeping with the assertion.
“Sadly, whereas this situation was nonetheless being mentioned within the September 17 assembly of the Council, NFRA has come out with an Publicity Draft of SA 600 for revision inviting public feedback on the identical day, which has come as a shock to the Institute”, mentioned the ICAI assertion.
Due course of
As per the established observe, for revision of any commonplace, the Council of the Institute units up a Group, which, after totally analyzing all points concerned, releases an Publicity Draft of the usual for public feedback.
After contemplating the general public feedback and making mandatory modifications, the AASB submits its report back to the Council. Following due deliberations, the Council forwards its suggestions on the requirements to NFRA. “This course of couldn’t be complied with within the present case, as NFRA has already issued the Publicity Draft for public feedback even when the Council was discussing this matter for overview,” ICAI assertion mentioned.
The bone of rivalry between ICAI and NFRA is concerning the alignment of SA 600 with ISA 600 (Worldwide Customary of Auditing). Whereas NFRA is for full convergence, ICAI feels the Indian state of affairs requires carve-outs on the necessities of the auditing commonplace round group audits of enterprises. ICAI is against permitting the group auditor entry or look into the working papers of part auditors. This observe is, nonetheless, allowed within the worldwide commonplace.
Part auditor competencies
Worldwide ISA 600 requires the group auditor to evaluate the skilled competence of part auditors for firms inside the identical group. In overseas jurisdictions, the auditors include totally different {qualifications} and audit isn’t obligatory for all firms beneath the regulation. Thus, they’ve the idea of Group and part auditor, in keeping with ICAI.
In India, all firms should be mandatorily audited by chartered accountants beneath the Firms Act, 2013. Since all chartered accountants are members of the ICAI, this ensures uniform commonplace of qualification {and professional} competence. “Given this uniformity, ICAI believes it’s neither potential nor fascinating for the group auditor to evaluate or train management over the choices of a part auditor who’s equally certified,” ICAI assertion mentioned.
Below the prevailing SA-600, the group auditor already has the facility to specify to what extent he relied on part auditor reporting and might search additional clarification or justification from the part auditor, if required, it added.
Relevance to Indian context
Worldwide ISA 600 defines a part auditor to be an auditor who performs audit work associated to a part for functions of the group audit. A part auditor is a part of the engagement crew for group audit. This definition isn’t related to the Indian context. The distinctive regulatory structure {and professional} setting in India necessitates a cautious consideration of home wants and circumstances earlier than transplanting abroad requirements.Additional, there are apprehensions within the minds of small and medium CA companies who’re usually entrusted with audit work of the subsidiary firms that the Group auditor within the guise of overseeing of high quality of their work and beneath the pretext of guaranteeing uniform high quality could persuade the managements to interchange the small audit companies of subsidiary firms with that of his personal companies resulting in focus of the audit work within the arms of few companies. “This could make the survival of the small companies troublesome. In India, there arelarge variety of small CA companies in comparison with overseas jurisdictions”, ICAI assertion famous.
Consolidated monetary assertion
The prevailing authorized framework in India mandates the preparation of consolidated monetary statements for holding and subsidiary firms. The duty for these consolidated monetary statements doesn’t lie with the important thing administration personnel and Boards of Administrators of the holding firm however with the Boards and key administration personnel of the respective subsidiary firms. If that be the case, it might be unfair and unjust to lock the legal responsibility on the group auditor alone ignoring the managements of the holding firm. As per the prevailing SA-700 (Revised), the respective Boards of Administrators of the businesses included within the Group are liable for upkeep of enough accounting data as per regulation. “The proposed revision in SA 600 don’t adequately deal with the problems arising out of the Group and part auditors and their inter-se relationship and obligations”, ICAI assertion mentioned.