NFRA Advances Auditing Reforms with ISA 600 Adoption; ICAI Revises Quality Management Standards

After months of deliberation, the National Financial Reporting Authority (NFRA) announced on Monday its decision to adopt the International Standard on Auditing 600 (ISA 600) for all listed companies, with the exception of public sector companies, state-run banks, and their branches.

In a separate development, the Institute of Chartered Accountants of India (ICAI) has agreed to revise the Standard on Quality Management (SQM), a framework for managing quality in audits or reviews of financial statements, following the completion of public consultations. ICAI will now forward the revised SQM paper to NFRA for further action.

These matters were discussed during an NFRA board meeting, where ICAI was granted some flexibility regarding ISA 600 for large unlisted companies. The revision of the Indian Standard on Auditing 600 (SA 600) will be discussed by ICAI, with implementation decisions to follow later, according to sources familiar with the discussions.

NFRA, in collaboration with the RBI and SEBI, has supported a revamp of SA 600, originally implemented in 2002, which has not kept pace with ISA 600, resulting in significant gaps in the auditing of large and listed companies. NFRA will now issue an exposure draft applicable initially to listed private companies.

Based on the feedback received, the board will finalise the standards in the coming months before submitting them to the Ministry of Corporate Affairs for notification, sources told TOI.

The discrepancies between SA 600 and ISA 600 were highlighted in several recent fraud cases, where the role of auditors and audit firms was scrutinised by NFRA. SA 600 is crucial for coordinating the work of different auditors and defining the responsibilities of the principal auditor, particularly in the auditing of large companies, including NBFCs and banks.