ICAI takes matters into its own hands with new quality management standards

Oct 16, 2024

Synopsis
ICAI released new Standard of Quality Management for CAs and audit firms, bypassing NFRA's mandated process. This move has sparked a controversy as NFRA argues for unified quality standards. INR, Sebi, and CAG representatives support NFRA's stance. The disagreement raises concerns about the coherence and enforcement of audit quality standards in India.

The Institute of Chartered Accountants of India (ICAI) has released a new Standard of Quality Management (SQM) for chartered accountants and audit firms. This move comes despite legal requirements that these standards be notified by the government based on recommendations from the National Financial Reporting Authority (NFRA), ToI reported.

NFRA, which oversees auditors and firms working with listed and large companies, has been pushing to align audit standards with global norms. This effort aims to close gaps identified during audits of companies with subsidiaries or branches audited by different auditors. These gaps have been linked to significant fund siphoning incidents involving companies like IL&FS, Reliance Capital, DHFL, and Cafe Coffee Day.

NFRA has emphasized the need for revised SQM to ensure quality audits, proper supervision, and auditor independence. The issue was discussed in a recent board meeting where ICAI was asked to submit a draft within three weeks. However, ICAI proceeded to release the SQM and made changes to some audit standards, which some see as a violation of norms.

At the meeting, representatives from RBI, Sebi, and CAG, as well as part-time members R Narayanaswamy and Sanjay Kallapur, supported NFRA and called for government notification.

A senior chartered accountant commented, "This kind of a situation is not good for the profession."

ICAI did not respond to queries regarding this development.

(With ToI inputs)

[The Economic Times]