The Institute of Chartered Accountants of India ( ICAI ) has expressed significant concerns over the applicability of the International Standard on Auditing ( ISA ) 600 in the Indian context.
During its Council meeting on September 17, 2024, the ICAI discussed the existing Standard on Auditing ( SA ) 600 and called for a pause in its revision process to allow for a comprehensive review involving all stakeholders.
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ICAI pointed out that in India, all companies are mandatorily audited by Chartered Accountants under the Companies Act, 2013. The ISA 600 mandates group auditors to assess the professional competence of component auditors within the same group. Since all Chartered Accountants are members of the ICAI, there is a uniform standard of qualification and professional competence. “It is neither possible nor desirable for the group auditor to assess or exercise control over the decisions of a component auditor who is equally qualified,” the ICAI stated.
The definition of a component auditor under ISA 600 does not align with the Indian auditing environment. In India, small and medium Chartered Accountant firms often audit subsidiary companies. There are concerns that group auditors might influence management to replace these smaller firms under the guise of ensuring uniform quality, potentially leading to a concentration of audit work among a few large firms. This could jeopardize the survival of smaller firms, which are more prevalent in India compared to foreign jurisdictions.
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The ICAI noted that Indian law requires holding and subsidiary companies to prepare consolidated financial statements. The responsibility for these statements lies with the Boards and key management personnel of the respective subsidiary companies, not solely with the holding company’s management. Placing the liability solely on the group auditor, therefore, would be “unfair and unjust,” according to the ICAI. Additionally, differing regulations from bodies like SEBI, RBI, IRDA, and CAG complicate the group auditor’s ability to assess the competency of component auditors across various sectors.
The ICAI Council acknowledged that while the current SA 600 has been effective, there is room for enhancement to better serve the public interest. The Council has directed the Auditing and Assurance Standards Board ( AASB ) to review the standard and initiate the customary process of releasing an exposure draft for public comment.
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However, the ICAI expressed surprise over the National Financial Reporting Authority ( NFRA ) issuing its own exposure draft for the revision of SA 600 on the same day as the Council meeting. Traditionally, the ICAI undertakes a thorough review process before forwarding recommendations to NFRA. “This process could not be complied with in the existing case as NFRA has already issued the exposure draft for public comments even when the Council was discussing this matter for review,” the ICAI stated.
Given these developments, the ICAI has called for a pause in the revision process of SA 600.
The Institute reiterated the need for a comprehensive review and discussions with all relevant stakeholders to ensure that any changes made are in the best interests of both the profession and the public.
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