Two audit standards, one decision: ICAI, NFRA divided over group audit rules

The Ministry of Corporate Affairs (MCA) must now decide between two versions of the auditing standard known as SA 600. The choice will dictate how much legal liability a "lead" auditor carries for vetting the financial health of a conglomerate’s subsidiaries.

At the heart of the difference is a fundamental disagreement over accountability. While the National Financial Reporting Authority (NFRA), the regulator, wants the lead auditor in a business group to be solely responsible for the accounts of the parent and subsidiaries, the rule-making body Institute of Chartered Accountants of India (ICAI) preserves the model of lead auditor depending on the work of individual subsidiaries' auditors with checks and balances.

The ICAI approved a revised version 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 extant version.

“The revised standard enables the principal auditor, where necessary, to review component records, visit the component, perform direct audit procedures, and issue a modified opinion if required," ICAI said.

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.

AASB, at its meetings held on 4 and 8 December 2025, finalized the draft of SA 600 (Revised). The ICAI Council subsequently considered AASB’s recommendations on 10 December and approved the revised standard, the ICAI statement said.

“The Council noted that the revised draft standard represents a significant improvement over the existing version in terms of structure, clarity, and regulatory responsiveness," ICAI said.

Queries emailed to NFRA seeking comment remained unanswered.

Where it stands

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.

“Once notified and applied in practice, the revised SA 600 is expected to support more consistent, transparent, and higher-quality group audit outcomes, thereby strengthening regulatory confidence," Sehgal said.

ICAI has said the revised SA 600 is written in clear, easily comprehensible language and is “better aligned to the Indian environment and regulatory expectations."

“It provides a comprehensive, sequential, and structured articulation of the entire process governing the interaction between the principal auditor and the other auditor. It lays down a clear framework for reliance on the work of the other auditor and establishes accountability parameters for both the principal auditor and the other auditor," ICAI stated.

The first person cited earlier said NFRA last year approved its revised version of SA 600 in line with international rules and has recommended it to the government for notification. “That position stands, irrespective of any further action on this from ICAI’s side," the person said.

“Ultimately, framing accounting standards and guidance is ICAI’s forte. The Institute has to work on that," said the second person cited earlier.