NFRA issues revised Standards on Auditing 600 for public consultation

The National Financial Reporting Authority on Tuesday issued the revised Standards on Auditing 600 (SA 600) for public consultation that would address deficiencies in group audit of firms that were highlighted in several cases of corporate frauds. As per the revised norms, the group auditor would be responsible for the audit work done by other auditors for group entities.
 
“The revisions being proposed are to be applied to audits of Public Interest Entities (PIEs) that fall under Rule 3 of NFRA Rules 2018, except Public Sector Enterprises, Public Sector Banks, Public Sector Insurance Entities, and their respective branches,” the NFRA said.
 
SA 600 is applied in case of audit of companies which have subsidiaries and associates, with the holding company being audited by a principal or main auditor and the subsidiaries and/or associates by ‘other’ or ‘component’ auditors. The standard outlines the responsibilities of the principal auditor vis a vis those of the component auditor.
 
“Some of the largest corporations and companies with significant exposure to capital markets, investors, creditors and thereby involving huge public interest, operate through a network of subsidiaries, joint ventures, branches and associates which makes the requirements of this standard very significant,” said the NFRA, adding that the quality of audit opinion on the consolidated financial statements (CFS), which is relied upon by investors, creditors and other stakeholders, hinges in significant part on how robust this standard is and how it is applied by auditors in discharge of their audit responsibilities.  
 
The issue had been taken up in the NFRA’s 17th Board meeting on August 26 where the need for a revision in SA 600 was discussed. The current SA 600 was issued by the Institute of Chartered Accountants of India in 2002 and has since not been updated. The revised standard would bring the SA 600 to international standards.
 
However, there have been several issues related to corporate frauds and related audit failures, instances of gross negligence in audit of Group companies like Coffee Day Global Limited, Reliance Capital Limited, Dewan Housing and Finance Limited where serious deficiencies had been observed in the audit carried out by principal auditors and component auditors.
 
“The primary reason for proposing adoption of a revised Standard for group audits is to help safeguard public interest and investor protection, and the need for a standards framework that is robust enough to meet the challenges posed by complex financial systems today. The inherent complexity of group structures… cannot be handled by the 2002 version of SA 600 and the related provisions across other standards,” the NFRA noted.
 
According to sources, the ICAI has not been in favour of the revision pointing out that if in the revision, a Chartered Accountant is not allowed to rely on the findings of another Chartered Accountant, then the profession and qualification will be undermined.
 
However, the Reserve Bank of India, SEBI and the Comptroller and Auditor General of India have given their in principle approval to the proposed revision.