NFRA Proposes Changes to Audit Standard SA 600 for Investor Protection

New Delhi, Sep 17 (PTI) To help protect investors' interest, the National Financial Reporting Authority (NFRA) on Tuesday proposed changes to the auditing standard SA 600 that pertains to audit of group companies.

The watchdog's consultation paper on the standard also comes against the backdrop of instances of the quality of audit in respect of group audits -- where SA 600 is applicable -- being found deficient and resulting in gross negligence by auditors.

The Standard of Auditing (SA) 600 is applicable in the case of audit of companies which have subsidiaries and associates, with the holding company being audited by a principal or main auditor and the subsidiaries and/or associates by other or component auditors.

"The primary reason for proposing adoption of a revised standard for group audits is to help safeguard public interest and investor protection, and the need for a standards framework that is robust enough to meet the challenges posed by complex financial systems today," NFRA said.

At present, the 2002 version of SA 600 by the Institute of Chartered Accountants of India (ICAI) is in force.

The revised SA 600 would be applied to audits of Public Interest Entities (PIEs) except public sector enterprises, public sector banks, public sector insurance entities and their respective branches.

With several cases of corporate frauds and audit failures/deficiencies as seen in recent times, NFRA said it has been deemed necessary to revise SA 600.

Citing various cases, the regulator also said there were several obvious indications of siphoning off of funds through subsidiaries including promoter-controlled subsidiaries, non-consolidation of significant subsidiaries in the consolidated financial statements and non-performance of adequate audit procedures in the identification, among other issues.

SA 600 outlines the responsibilities of the principal auditor vis-a-vis those of the component auditor. Some of the largest corporations and companies with significant exposure to capital markets, investors and creditors operate through a network of subsidiaries, joint ventures, branches and associates.

Stakeholder comments have been sought on the consultation paper till October 30.

During the meeting of NFRA on August 26, ICAI had flagged that if a chartered accountant is not permitted to rely on the audit of another chartered accountant under the revised SA 600, then it would be undermining the qualification.

The institute had also said it had to discuss the matter in its central council and come back with the views.