Siddharth Gupta’s Post

Navigating Accountability: The Impact of SA 600 on Group Audits and the Ongoing NFRA-ICAI Debate Standards on Audit 600 (SA 600) delineates the responsibilities of auditors when relying on the work of other auditors in a group audit. It outlines the conditions under which the principal auditor (or group auditor) can depend on the work of component auditors. Specifically, this reliance is contingent upon evaluating the component auditor's competence and independence, as well as assessing the adequacy of their findings and the implications for the group audit opinion. ISA 600, the international standard, similarly allows for reliance on component auditors, but it emphasises that the principal auditor retains ultimate responsibility for the audit opinion on the group financial statements. Debate Between NFRA and ICAI: In light of recent audit shortcomings and corporate fraud cases, the National Financial Reporting Authority (NFRA) has proposed reforms aimed at safeguarding public interest and enhancing investor protection. The NFRA advocates for a standardised framework to address evolving challenges in the financial sector. Their consultation paper highlights critical issues, including the siphoning of funds through subsidiaries, the non-consolidation of significant components, and inadequate audit procedures. ICAI's Standpoint: The Institute of Chartered Accountants of India (ICAI) has expressed concerns regarding these proposed changes, arguing that holding the principal auditor responsible for the entire group’s financial statements could adversely affect mid-sized and small audit firms. ICAI warns that this might lead to a concentration of audit engagements among a few large firms. NFRA’s Response: In response, the NFRA clarified that the revised standards would primarily impact financial institutions and listed companies, affecting only about 1.8% of active companies in India. They emphasised that mid-sized and small firms would continue to play a vital role in the audit ecosystem. Note: This article is only for educational purposes. #ICAI #NFRA #SA600

NFRA’s Elucidation: ✔️Principal Auditors incorecctly interpreted SA 600 by relying solely on Component Auditors' clean reports, neglecting fraud indicators. ✔️The use of “should” in SA 600 does not confer an arbitrary choice to selectively apply the Standard’s provisions. ✔️Auditors must comply with SA 600 and related provisions on audit of Group Financial Statements across SAs. ✔️There is no bar on sharing of work papers by auditors. Review of Component Auditors’ work papers is inherent to Principal Auditor’s obligations. ✔️Sec. 143 of the Companies Act, 2013 specifies unequivocal rights of the Principal Auditor to records of holding company, subsidiaries, associates, JVs, branches. ✔️Though SA 600 does not specifically require review of Component Auditors’ work papers, such a review may be required in appropriate cases. ✔️ "Professional competence" in SA 600 goes beyond verifying Component Auditor’s CA qualification, and includes evaluating experience and skills.

NFRA has issued a circular on Responsibilities of Principal Auditor and Other Auditors in Group Audits ✔️Principal Auditors incorecctly interpreted SA 600 by relying solely on Component Auditors' clean reports, neglecting fraud indicators. ✔️The use of “should” in SA 600 does not confer an arbitrary choice to selectively apply the Standard’s provisions. ✔️Auditors must comply with SA 600 and related provisions on audit of Group Financial Statements across SAs. ✔️There is no bar on sharing of work papers by auditors. Review of Component Auditors’ work papers is inherent to Principal Auditor’s obligations. ✔️Sec. 143 of the Companies Act, 2013 specifies unequivocal rights of the Principal Auditor to records of holding company, subsidiaries, associates, JVs, branches. ✔️Though SA 600 does not specifically require review of Component Auditors’ work papers, such a review may be required in appropriate cases. ✔️ "Professional competence" in SA 600 goes beyond verifying Component Auditor’s CA qualification, and includes evaluating experience and skills. #nfra #icai #ca #big4 #audit #mca #quality

NFRA would want to improve the quality of audit and doing its effort to bring the audit quality at its best whereby key stakeholders understand the upcoming challenges much in advance. To do further enhancement, it is now planning to engage with audit committee OR those who are charged with Governance. indeed, this is an imperative step to enhance quality and understand the conduct of right doing from governance perspective. Management of the company would be answerable to audit committee OR those who are charged with Governance as well as Auditor when both would be responsible to address NFRA. Such step is in absolutely right direction to address some of the key accounting and auditing issue such as going concern, goodwill recognition and its impairment, revenue recognition and its policy, valuation, presentation of key challenges with notes, commitments, derivatives. It is high time that Management and auditor assess situation along with detailed working papers, its cause, its resolution and addressing it in an adequate manner to key stake holders at the RIGHT TIME. #AccountingADVISORY #GOVERNANCE #DOCUMENTATION https://lnkd.in/deA3xK5P

✅ Auditors would not be relieved from their duties even if they disclaim their opinion in the Audit report. 📍A recent NFRA order highlights some crucial aspects of the auditor’s duties. The order clearly states that “Disclaimer of Opinion in itself cannot be a basis for absolving an auditor of his statutory responsibility under the Companies Act, 2013.” 📌 Even after issuing a disclaimer of opinion, the auditor shall [1] Perform his obligation to report fraud under section 143(12) [2] Obtain sufficient and appropriate audit evidence [3] Comply with standards on auditing [4] Report non-compliance with disclosure requirements under applicable accounting standards [5] Give proper basis for Disclaimer of Opinion on IFCOFR The order also highlights some crucial insights on how Companies commit fraud and indicators of fraud. ♂️ A link of the order is given below: https://lnkd.in/g2E7qwb2 Follow CA. Devender Pandey 🇮🇳 for more such discussions. #audit #assurance #icai #nfra #standards

This is likely to happen in 2025. Compliance & risk professionals: Get ready to demonstrate a data-driven #compliance program to your external #auditor that includes tests of transactions (not just #duediligence). The Public Company Accounting Oversight Board (PCAOB) proposed the changes last year (see WSJ article). Comment period is over! It's now out to vote (or being reviewed by SEC, who knows). The buzz among auditors is that #NOCLAR / #AS2405 will pass and be required in 2025! konaAI can help you be ready. It's the topic of my current issue of Association of Certified Fraud Examiners (ACFE) #FRAUD Magazine. konaAI and Thomas Fox have a webcast on it next week, August 6th, with industry experts. Visit konaai.com/events to register for this must-see discussion. #FCPA, #Sanctions, #fraudriskmanagement, #anticorruption, #AML, Patrick Grobbel, CFE, CAMS, Lynda Schwartz https://lnkd.in/e3GF4iSM

#auditcommittee The #NFRA head observations have hit 🎯 on the way the audit committee are functioning. This should be a wake up call for the members of the Audit Committee that there will be no escape route for lapses. Time to introspect, revisit Audit Committee charter and get alert to the expectations on their roles and responsibilities. The 5 key issues which could be affecting audit committees are :- 1. Lack of expertise 2. Insufficient Independence 3. Inadequate resources 4. Regulatory Complexity & Compliance burden. 5. Information Overload. For strong #corporategovernance effectiveness of audit committee is essential. This is an area on which listed companies need to work on. #asksk https://lnkd.in/gZr_G2VG

The dispute is between ICAI and NFRA regarding proposed changes to auditing standard SA 600. SA 600 deals with group audits, focusing on how principal auditors use the work of component auditors. NFRA wants principal auditors, typically overseeing audits of holding companies, to be fully accountable for component auditors' work. Currently, principal auditors rely on component auditors without being responsible for their errors or misconduct. ICAI is concerned that these changes will harm small and medium CA firms. The changes could lead to the concentration of audit work among larger firms, limiting competition. ICAI argues this would "kill the majority of CA firms in the country." NFRA’s changes aim to improve accountability, citing high-profile corporate fraud cases like DHFL, IL&FS, and Coffee Day Enterprises. These fraud cases exposed accountability gaps between principal and component auditors. NFRA's proposal includes giving principal auditors access to component auditors' working papers for better oversight. I would appreciate your insights on this matter. #ICAIvsNFRA #AuditStandards #GroupAudits #SaveSmallCAFirms #AuditReforms #SA600Debate #AuditorIndependence #NFRAChanges #ICAIConcerns #AuditAccountability

**SA 550: Related Parties – Key Audit Considerations** SA 550 guides auditors on identifying and assessing related party (RP) relationships and transactions to ensure accuracy in financial reporting. **Auditor’s Objectives**: 1. **Identify Fraud Risk**: Assess RP relationships to recognize fraud risks and ensure financial statements are either true and fair (for fair presentation frameworks) or not misleading (for compliance frameworks). 2. **Obtain Sufficient Appropriate Audit Evidence (SAAE)**: Ensure RP relationships and transactions are properly identified, accounted for, and disclosed in the financial statements. **What Defines a Related Party?** - A party defined by the financial reporting framework (FRF), or - Entities/persons having control, significant influence, or common ownership with the reporting entity. **Engagement Team Discussion**: - Discuss the nature, extent, and documentation related to RP relationships. - Emphasize **professional skepticism** to detect undisclosed or improperly accounted RP transactions. **Understanding RP Relationships & Transactions**: Auditors should: - Inquire about the identity, nature, and changes of RP relationships. - Inspect records like bank confirmations, legal documents, minutes, tax returns, and shareholder registers to identify undisclosed RPs. **Red Flags in RP Transactions**: - Unusual contracts, complex transactions, or offshore dealings might indicate hidden RP relationships or fraudulent activity. **Handling Undisclosed RPs**: - Investigate why internal controls failed to detect RP relationships. - Conduct substantive procedures on newly identified transactions and evaluate implications if non-disclosure appears intentional. By following SA 550, auditors ensure comprehensive evaluation of RP relationships, maintaining the transparency and integrity of financial reporting. #Audit #CAFinal #RelatedParties #FinancialReporting #AuditingStandards #SA550

🚨 NFRA Releases Revised Standards on Auditing (SA 600) for Public Consultation 🚨 The National Financial Reporting Authority (NFRA) has issued revised Standards on Auditing 600 (SA 600) to align with the International Standards on Auditing (ISA 600). These changes are aimed at addressing the "severely deficient audit quality" found in group audits across India. The revised standards, now open for public consultation, will cover audits for listed companies and public interest entities, excluding public sector enterprises, insurance entities, and banks. This move will affect 17,450 listed holding companies and their subsidiaries, including unlisted ones, ensuring better public interest and investor protection. Key highlights of the revised standards: Group auditor is responsible for the audit, including evaluating the work and communication of component auditors. Special considerations for auditing group financial statements are outlined. The revisions respond to concerns about a lack of due diligence and the concentration of audit work with a few large firms, ensuring that small and medium audit firms will not be significantly impacted. However, concerns have been raised by the Institute of Chartered Accountants of India (ICAI) regarding potential implications for small and medium practices. With RBI, SEBI, and CAG backing the revisions, this is a crucial step toward enhancing the integrity and reliability of audits, especially given the complexity of group structures in today’s financial systems. Recent corporate scandals (Reliance, Coffee Day, Dewan Housing) have underscored the need for stricter standards, and these revisions aim to close gaps in oversight. Your thoughts on these proposed changes? 💬 #Audit #NFRA #Accounting #CorporateGovernance #FinancialReporting #ICAI #SA600