NFRA vs ICAI: The Battle That Will Change Auditing Forever! | Neeraj Arora

Summary

In this video, Neeraj discusses the recent NFR (National Financial Reporting Authority) meeting and the upcoming changes to auditing standards, effective from April 2026. Key updates include amendments to SA 600, which redefines the principal auditor's responsibility for consolidated financial statements, and changes to SA 299, which introduces joint and several liability for auditors. The NFR aims to align Indian practices with global standards, though disagreements persist with ICAI over the implementation and scope of these reforms. The video provides valuable insights into the evolving audit landscape and its potential impact on auditors and firms.

Takeaways

• 😀 NFRA's meeting discussed major amendments to auditing standards, which will be implemented from April 2026.
• 😀 The updated SA 600 will hold the principal auditor fully accountable for the entire consolidated financial statement, eliminating the ability to rely on component auditors.
• 😀 The proposed changes in SA 600 aim to align India’s auditing practices with global standards, ensuring greater accountability for principal auditors.
• 😀 SA 299 amendments would make joint auditors jointly liable for the audit work done, but ICAI raised concerns about increased costs and duplication of efforts.
• 😀 NFRA argued that the global practices of joint auditor accountability must be followed, despite ICAI’s objections about cost and efficiency.
• 😀 ICAI and NFRA are at odds over the notification process for new auditing standards, with ICAI asserting its mandate to issue quality management standards (SQM) for assurance services.
• 😀 ICAI’s stance is that SQM standards apply to all assurance services, not just audits, while NFRA maintains that the central government should notify these standards.
• 😀 The shift in responsibility for the principal auditor under SA 600 is expected to impact larger, listed companies the most, especially in terms of audit accountability.
• 😀 NFRA's proposals aim to make the audit process more transparent and accountable, particularly for companies that affect the public interest.
• 😀 The change in terminology from 'Ind AS' to 'Ind ASE' is part of NFRA’s efforts to update and unify India’s auditing standards with global practices.
• 😀 The outcome of the meeting reflects ongoing debates between NFRA and ICAI, with NFRA emphasizing global alignment and ICAI advocating for local context in the application of standards.

Q & A

What is NFRA and why is it important in auditing?

NFRA (National Financial Reporting Authority) is a regulatory body that oversees the auditing standards and practices in India. It ensures the quality and integrity of audits, especially for large or listed companies, and acts as an 'audit watchdog' to enforce compliance with global and national standards.

What new developments were discussed in the NFRA meeting regarding auditing standards?

The NFRA discussed the introduction of 40 revised auditing standards by April 2026. These standards, now referred to as IND AS (Indian Standards on Auditing), aim to align Indian auditing practices with global standards, enhancing accountability and transparency in the auditing process.

What changes to SA 600 were proposed, and why is it significant?

The proposed changes to SA 600 focus on the responsibility of the principal auditor for consolidated financial statements. NFRA suggested that the principal auditor should be fully accountable for the consolidated financial statements, unlike the previous system where component auditors had shared responsibility. This change aligns with global practices and aims to enhance accountability.

How did the Institute of Chartered Accountants of India (ICAI) react to the changes in SA 600?

ICAI opposed the proposed changes to SA 600, arguing that it would benefit only large auditors, as it could lead to them handling all subsidiary audits. ICAI also pointed out that this could lead to increased costs for smaller firms and more complexity in the audit process.

What is the proposed amendment to SA 299, and what concerns did ICAI raise?

The proposed amendment to SA 299 suggests that all auditors involved in an audit should be jointly and severally liable for the audit work. ICAI raised concerns that this would lead to duplication of work and increased costs, as each auditor would need to recheck the work done by others.

What is the significance of the proposed changes to SA 299 in the context of joint audits?

The changes to SA 299 would require joint auditors to take full responsibility for all audit work done, which could lead to higher costs and more detailed checks. ICAI warned that this would introduce unnecessary duplication and inefficiencies, particularly in cases where multiple auditors are involved.

What is the status of the new auditing standards, and when will they be implemented?

The new auditing standards, which will be called IND AS, are expected to be implemented by April 2026. These changes will replace the current Indian auditing standards (Ind AS) and aim to bring Indian practices in line with global auditing standards.

What was the disagreement between NFRA and ICAI regarding the issuance of SQM (Standard on Quality Management)?

NFRA argued that the issuance of SQM standards, which govern audit quality, should be handled by the central government, as part of the broader regulatory framework. ICAI disagreed, asserting that it had the mandate to issue these standards, as SQM applies not only to audits but also to all assurance services.

How did NFRA address ICAI's concerns about the changes to SA 600 and SA 299?

NFRA dismissed ICAI’s concerns about SA 600 and SA 299, emphasizing that the new global practices would only apply to a limited number of companies, particularly large and listed companies. NFRA argued that these changes would help improve the quality and accountability of audits.

What impact will the new auditing standards have on the auditing profession in India?

The new auditing standards are expected to raise the bar for audit quality and accountability, especially for large and listed companies. While they may increase costs for auditors in the short term, they will bring Indian auditing practices in line with global standards, enhancing trust and transparency in financial reporting.