The Institute of Chartered Accountants of India (ICAI) has reviewed the SA 600 in its recently held Council Meeting on September 17, 2024.
Key Concerns Raised by ICAI:
Assessment of Component Auditor Competence: International ISA 600 requires the group auditor to assess the professional competence of component auditors for companies within the same group. In foreign jurisdictions, the auditors come with different qualifications and audit is not mandatory for all companies under the law and hence they have the concept of Group and component auditor. In India, all companies have to be mandatorily audited by a chartered accountants under the Companies Act, 2013. Since all chartered accountants are members of the ICAI, this ensures uniform standard of qualification and professional competence. Given this uniformity, ICAI believes 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.
Under the existing SA-600, the Group Auditor already has the power to specify to what extent he relied on component auditor reporting and can seek further clarification or justification from the component auditor, if required.
Relevance to Indian Context: International ISA 600 defines a component auditor to be an auditor who performs audit work related to a component for purposes of the group audit. A component auditor is part of the engagement team for group audit. This definition is not relevant to the Indian context. The unique regulatory architecture and professional environment in India necessitates a careful consideration of domestic needs and circumstances before transplanting overseas standards. Further, there are apprehensions in the minds of small and medium CA firms who are generally entrusted with audit work of the subsidiary companies that the Group auditor in the guise of overseeing of quality of their work and under the pretext of ensuring uniform quality may persuade the managements to replace the small audit firms of subsidiary companies with that of his own firms leading to concentration of the audit work in the hands of few firms. This would make the survival of the small firms difficult. In India, there are large number of small CA firms compared to foreign jurisdictions.
Consolidated Financial Statements: The existing legal framework in India mandates the preparation of consolidated financial statements for holding and subsidiary companies. The responsibility for these consolidated financial statements does not lie with the key management personnel and Boards of Directors of the holding company but with the Boards and key management personnel of the respective subsidiary companies. If that be the case, it would be unfair and unjust to fasten the liability on the group auditor alone ignoring the managements of the holding company. As per the existing SA-700 (Revised), the respective Boards of Directors of the companies included in the Group are responsible for maintenance of adequate accounting records as per law. The proposed revision in SA 600 do not adequately address the issues arising out of the Group and component auditors and their inter-se relationship and responsibilities.
Further complicating this scenario is the fact that different sectoral and multiple regulators in India, such as SEBI, RBI, IRDA, and CAG, have varying norms, eligibility criteria, and procedures for appointing statutory auditors and determining their responsibilities under the respective enactments. This creates an unusual situation for the group auditor, to judge the competency of component auditors across various sectors governed by distinct and separate regulatory frameworks and statutory disclosure requirements.
ICAI's Position:
The ICAI Council, in its meeting held on September 17, 2024, expressed its view that while the current SA 600 has been effective and has stood the test of time, there is room for further review and strengthening to better serve public interest. The Council has tasked the Auditing and Assurance Standards Board (AASB) with this review and start the process of reviewing the standard for exposure as has been the practice in ICAI.
Unfortunately, while this issue was still being discussed in the aforesaid meeting of the Council, NFRA has come out with an Exposure Draft of SA 600 for revision inviting public comments on the same day which has come as a surprise to the Institute. As per the practice established and followed for many years, for revision of any standard, the Council of the Institute sets up a Group which after thoroughly examining all issues involved releases an Exposure Draft of the standard for public comments. After considering the public comments and making necessary changes wherever appropriate, the AASB submits its Report to the Council. After due deliberations, the Council forwards its recommendations on the standards 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.
Therefore, ICAI calls for a pause in the revision process to allow for a comprehensive review and discussion with all relevant stakeholders to ensure that any changes are in the best interest of the profession and public. |
