ICAI Proposes Clear Division of Audit Responsibilities to Enhance Accountability

Economic Times
Economic Times
4h ago • 1 views
ICAI plans to clarify audit roles between group and subsidiary auditors to ensure accountability and improve financial statement quality, aiming to resolve differences with NFRA.
ICAI Proposes Clear Division of Audit Responsibilities to Enhance Accountability
A What happened
The Institute of Chartered Accountants of India is preparing to submit recommendations revising auditing standard SA600 to the corporate affairs ministry and NFRA. The proposed revisions seek a clear division of responsibilities between principal auditors of corporate groups and auditors of subsidiaries, preserving audit quality and distributing work across firms of varying sizes. ICAI opposes NFRA’s suggestion that principal auditors assume full responsibility for group financial statements and evaluate subsidiary auditors, citing risks to smaller firms. ICAI’s recommendations include formalized communication protocols and transparency requirements, enabling principal auditors to review group subsidiary records directly and issue modified opinions when necessary. This move aims to restore balance in audit accountability and improve overall financial oversight amid prior tensions with the regulator.
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Key insights

  • 1

    Balancing Audit Quality and Market Structure: ICAI’s opposition to NFRA’s approach reflects concerns that concentrating audit accountability with principal auditors may marginalize smaller audit firms, potentially reducing market competition and auditor diversity in India.

  • 2

    Accountability Framework Evolves with Formalized Roles: The proposed revision formalizes interaction and accountability rules between principal and component auditors, reflecting a structural shift toward clearer responsibility allocation in group audits.

  • 3

    Implications for Corporate Governance and Investor Trust: Enhancing audit clarity and accountability strengthens financial statement reliability, an essential factor for investor confidence and corporate governance in India’s evolving regulatory landscape.

Takeaways

ICAI’s recommendations aim to reconcile quality and accountability in group audits while preventing overconsolidation of audit responsibilities. The corporate affairs ministry’s decision on these proposals will shape India’s audit regulatory framework.

Topics

World & Politics Policy & Regulation Governance