NEW DELHI: The long-standing disagreement between the National Financial Reporting Authority (NFRA) and the Institute of Chartered Accountants of India (ICAI) over the revision of auditing standards has grown more pronounced, prompting calls for government intervention.
This conflict holds significant implications for India’s corporate governance framework, as both NFRA and ICAI play crucial roles in shaping auditing norms that influence corporate credibility and investor confidence.
NFRA, an independent regulatory body under the Ministry of Corporate Affairs (MCA), aims to update Indian auditing standards in line with global practices, specifically focusing on areas like group audits (SA 600) and joint audits (SA 299).
ICAI, however, has raised objections to several proposed standards, arguing that they may impose unnecessary burdens on smaller firms and lead to duplicative work that does not necessarily improve audit quality.
Quality management standards
ICAI contends that while NFRA’s updates are well-intentioned, they must be calibrated carefully to avoid stifling operational efficiency. Furthermore, ICAI has highlighted the distinct role of quality management standards, which it argues are essential for a broader operational framework rather than direct auditing procedures.
While NFRA has the authority to recommend audit standards, the Ministry of Corporate Affairs holds the final say in whether to adopt these as legally binding. The MCA recently sought a legal opinion affirming that only it can set binding audit standards, with NFRA and ICAI limited to advisory roles.
This position underscores the MCA’s central role in auditing oversight, adding a layer of complexity to the NFRA-ICAI tension. “The government’s potential involvement may serve to bridge this gap by facilitating discussions on regulatory clarity and ensuring both bodies can work collaboratively toward shared goals,” said a senior chartered accountant while talking to businessbenchmark.news.
The debate over Standards on Auditing (SAs) reflects broader concerns about the autonomy and authority of regulatory bodies in the audit sector.
Both NFRA’s drive for robust audit practices and ICAI’s focus on pragmatic implementation have value, and government mediation may be key to aligning their perspectives. As these standards influence the financial ecosystem’s integrity, achieving consensus between NFRA and ICAI is critical to maintaining corporate trust and operational resilience across India’s private sector.
