Concerns raised in some quarters that the revision of audit standards for group company audits will lead to a concentration of audit work in the hands of a few big firms are not justified, National Financial Reporting Authority (NFRA) chairperson Ajay Bhushan Pandey told Business Standard.
“Misplaced anticipation of some unknown problem cannot stop us from aligning with global standards and working towards greater transparency and investor protection,” Pandey added.
He said that even if there are remote examples of such cases, they can easily be remedied by the government by putting a cap on the number of audits a group auditor can perform for subsidiaries.
“Solutions are always possible… For Viksit Bharat, India needs to have global accounting and auditing standards. We cannot afford to have standards that are inferior,” Pandey said.
The National Financial Reporting Authority (NFRA), after its 18th board meeting on Tuesday, recommended revisions in 40 standards on auditing (SA), including SA 600 and SA 299, which deal with group and joint audits, respectively. The revision of these two standards has been opposed by the Institute of Chartered Accountants of India (ICAI) on the grounds that it will impact smaller firms and create duplication of work.
ICAI will be approaching the Ministry of Corporate Affairs (MCA) to voice its concerns.
According to the revised standards recommended by NFRA to the MCA, the group company’s auditor would also evaluate the component or subsidiary company auditor’s communications and the adequacy of their work. ICAI fears that this could lead to group auditors taking over the work of component auditors as well.
Pandey, however, said, “Nowhere do the standards say that the principal auditor has to do the work of a component auditor. That is why the apprehension of audit concentration is misplaced.”
He noted that most instances of recent major scams and corporate failures that NFRA has dealt with have a single thread showing that current auditing standards have many loopholes.
While these loopholes were addressed internationally several years ago, he said that India is yet to do so. “The proposed revised standards will make it harder for people to suppress such scams for long and help bring them to light at an early stage, thereby protecting the interests of, and enhancing the faith of, foreign and domestic investors, including crores of retail investors, in India’s corporate governance,” NFRA chairperson highlighted.
After NFRA’s recommendations, the MCA must approve the new standards and notify them. NFRA has recommended that the revised standards be made effective from April 1, 2026, upon government approval.