ICAI, NFRA differ on auditing biz groups

Chennai, Dec 31, 2025

The ICAI approved a revised ver­ion of SA 600 on 10 Decem­ber which will be sent to NFRA, allow­ing lead aud­it­ors to inspect subsidiary auditors’ records and introducing safe­guards, but stops short of assigning total liability on the lead auditor. Mean­while, the NFRA has already sent its own stricter version assign­ing full responsibility of the group audits on the lead aud­itor to the cor­por­ate affairs min­istry, which must now decide on the appropriate frame­work.

A ministry notification will assign responsibilities of the lead aud­itor and chart the audit journey for thousands of companies with subsidiaries. A per­son aware of the mat­ter said ICAI’S revised framework is unlikely to win NFRA’S backing, given that it has already approved its version based on international standards and sent its alternative to the ministry for notification.

In its current form, SA 600 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 the 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 ICAI 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.

NFRA’S reasons for proposing changes included findings from its oversight and enforcement work, which indicated “fraud, negligence and audit failure emanating from a faulty application of SA 600 and a tendency on part of principal auditors to rationalize their actions under the existing provisions of SA 600,” the regulator had said in the minutes of meetings held last year. Of NFRA’S 11 members, eight supported the move, while three ICAI mem­bers dissented.

ICAI had last year urged NFRA to pause its revision of SA 600 to allow for a comprehensive review. The ICAI statement to Mint said its Audit­ing and Assur­ance Stand­ards Board (AASB) under­took such a review with the goal of upgrading the stand­ard and address­ing regulatory concerns associated with the

The revised ICAI frame­work stops short of making the lead auditor solely responsible, as sought by NFRA extant version.

The revision sought to address NFRA’S con­cerns and has taken a middle path, said a second per­son informed about the development, who also spoke on condition of anonymity.

“The revised stand­ard will be sent to NFRA and hope it will lead to the standard’s revi­sion,” the per­son said. ICAI consults NFRA on fram­ing stand­ards.

Queries emailed to NFRA seeking com­ment remained unanswered.

Keshav Sehgal, part­ner at Ashok Maheshwary & Associates LLP, said the revised SA 600 developed by ICAI’S AASB aims to strengthen the quality of group audits by reinforcing the group auditor’s overall responsibility and improving oversight of component auditors.

“It provides greater clar­ity on roles, accountability, and information sharing, enabling more effective planning, supervision, and execution of group audits,” Sehgal said.

“At present, the revised stand­ard is yet to be notified by the ministry of corporate affairs (MCA), and two versions are in circulation, one issued by the Institute of Chartered Accountants of India and another recommended by the National Financial Reporting Authority. The final structure, applicability, and implementation timeline will be known once the government completes the notification process,” he added.

[Mint]