Government holds Authority over Final Decisions on Audit Standards

A legal opinion has been received by the NFRA stating that final decisions on audit standards can only be taken by the government. This clarification highlights that ICAI does not have the power to issue any binding audit standards or guidelines. Although suggestions can be made, ultimate approval or rejection lies with the government, specifically represented by the Ministry of Corporate Affairs (MCA).

It was also mentioned that the ICAI cannot take action against audit firms; its jurisdiction is limited to individual Chartered Accountants. This restriction aligns with the understanding that any standards related to audits and accounting fall under the government’s domain.

Discussions have arisen over NFRA’s recent proposal to revise 40 auditing standards, including SA 600 and SA 299, which deal with group and joint audits. ICAI raised objections, arguing that these amendments would adversely affect smaller firms and could lead to duplication of work. NFRA sources, however, suggested that while the proposed standards may not directly alter audit practices, they could result in indirect changes, which would fall under the MCA’s jurisdiction.

The legal opinion also referenced the ICAI’s release of the Standards of Quality Management 1 and 2 (SQM) during the previous month. These standards were defended as being aimed at enhancing quality management at the firm level without impacting audit standards. The SQM standards were said to provide guidelines and Standard Operating Procedures (SoPs) to ensure smooth functioning and proper quality management in firms.

This issue raises important questions about transparency and the delineation of roles between NFRA, ICAI, and the MCA. The debate reaffirmed that while suggestions may come from various bodies, only the government can take binding decisions regarding audit standards.