Top auditors and consultants support NFRA’s stricter group audit standards; message soon

The period for receiving public feedback ends this month and the 12-member NFRA board is expected to meet soon after, one of the people cited above said on condition of anonymity. It will consider the proposal to make the accountant of the holding company of business groups responsible for their consolidated financial statements, even if the subsidiary accounts are signed by other accountants.

“The implementation will be based on the decision of the NFRA board, which comprises representatives of Sebi, RBI, the Comptroller and Auditor General of India (CAG) and two independent members. The board decision will be communicated,” the person said.

The NFRA plans to go ahead with the changes even as the self-regulator and regulator of the accounting profession, the Institute of Chartered Accountants of India (ICAI), had called for a “pause” on harmonizing domestic auditing standards for group companies with global practices to enable “a comprehensive review and discussion with all relevant stakeholders.”

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It is fair to say that the NFRA has offered to exclude the audits of certain companies from the proposed standards, thereby alleviating the concerns of small accountants about larger accounting firms increasing their market share.

Accounting firm BSR& Co LLP., consulting firm PwC in India, consultancy and accounting firm Grant Thornton Bharat and another leading accounting firm, which did not wish to be named, supported NFRA’s stricter standards.

“BSR& Co LLP believes that alignment with global standards is a step in the right direction for audit quality,” the firm said. Mint on NFRA’s proposed changes to SA600, the auditing standard for group financial statements. “Any changes must enable education and transition for the accounting profession.”

Although BSR has a contractual arrangement with KPMG to share certain methodology, tools, software and training, it is an independent company.

The amendments are intended to address gaps in the current corporate group audit regime, which the regulator has said is “seriously flawed” because the holding company’s chief auditor was seen placing “mechanical trust” in subsidiary auditors . The NFRA also said that in some group audit cases it investigated, there were signs of siphoning of funds through promoter-run subsidiaries.

Sanjeev Krishan, chairman of PwC in India, said that through the proposed changes, NFRA aims to adopt the best global accounting and auditing standards to ensure that Indian practices align with international benchmarks.

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“This initiative, coupled with proper training and an appropriate transition period, will boost investor confidence and build confidence among stakeholders,” Krishnan said. “It will also help establish an enabling framework that supports sustainable economic growth while maintaining the highest standards of accountability, positioning and positioning. India as a Leader in Financial Governance.”

Vishesh C. Chandiok, CEO of Grant Thornton Bharat, a leading consultant and auditor, said the company has consistently supported all regulatory initiatives aimed at improving audit quality.

“As reflected in the trends in the regulatory findings, the SA600 was clearly in need of alignment with international standards and we are pleased to see the proposal in that direction, albeit in a staggered manner,” Chandiok said . “It is encouraging to see the regulators present their rationale for the proposed changes, including their consideration of concerns related to alignment.”

The proposed amendment to the NFRA applies only to public interest entities subject to the regulator, excluding state-owned enterprises, banks and insurers and their respective affiliates.

“We believe that this proposal will help implement global best practices in group auditing, providing clarity in the role of the lead auditor, improved transparency in component reporting and essentially increasing confidence in financial reporting ” said Chandiok.

The chief accountant is the accountant of the holding company and the units are subsidiaries.

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Questions by email to NFRA, ICAI and SRBC & Co. Llp., a leading accounting firm, on Oct. 23 seeking comment remained unanswered at time of publication.

The first person quoted above said that the revision of SA600 should not be seen as a battle between NFRA and ICAI. “Moreover, audit is not a bilateral issue between the auditor and the company, it is an issue involving public resources and interests of all public shareholders,” the person said.

The person also dismissed concerns that making the holding company’s accountant responsible for the group’s financial statements could drive up audit costs. “In listed companies, the public invests and the accountant who signs off on the accounts should be fairly compensated depending on the effort,” the person said.

While the review of SA600 is underway, the NFRA issued a circular earlier this month that builds on existing audit requirements by interpreting, but not changing, existing audit standards.

It explained that the interpretation and selective application of the provisions of SA600 in group audits was incorrect and not in accordance with the other auditing standards and the Companies Act, said Nilanjan Paul, a chartered accountant.

The circular makes it amply clear that the group accountant cannot outsource responsibility for parts of the group audit to the group auditor.

“The group engagement partner must assume leadership responsibilities for managing and achieving quality in group audits,” said Paul.

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