Two audit standards, one decision: ICAI–NFRA divided over group audit rules

Mint. However, the changes are unlikely to win NFRA’s backing, which has already approved its own, tougher version of the Standard on Auditing (SA) 600 and referred it to the ministry of corporate affairs (MCA) for notification, said a person informed about the development.SA 600 in its current form allows the lead auditor to rely on the work of a subsidiary’s auditor, subject to safeguards.

NFRA, however, is of the view that this model is weak in practical application due to excessive reliance on subsidiary auditors’ work without adequate supervision.This reliance, where a major part of the information in consolidated financial statements comes from subsidiaries, has been the subject of multiple disciplinary orders by NFRA, which found that lead auditors did not follow the safeguards in SA 600 in letter and spirit.NFRA’s revised standard seeks to make the lead auditor of the group unequivocally responsible and accountable for achieving quality of the audit assignment of the group and mandates the lead auditor’s involvement in the work of subsidiary auditors.ICAI’s revised standard, by contrast, proposes additional safeguards while retaining the concept of reliance on the work of subsidiary auditors. These safeguards include flexibility for the lead auditor to review subsidiary auditors’ records, perform direct audit procedures, and issue a modified opinion if required.While the revised framework reinforces the lead auditor’s responsibility for the entire group’s audit, it stops short of making the lead auditor solely responsible, as sought by NFRA based on its enforcement experience.ICAI had last year urged NFRA to pause its revision of SA 600 to allow for a comprehensive review.