Only the government has the authority to issue binding audit standards and guidelines. The Ministry of Corporate Affairs (MCA) is the government body that issues legally valid and enforceable auditing standards. The Institute of Chartered Accountants of India (ICAI) and the National Financial Reporting Authority (NFRA) do not have the power to independently set audit standards. The ICAI can only make recommendations that are subject to government approval.
The Comptroller and Auditor General (CAG) is the sole authority responsible for auditing the accounts of the Union and the States. The CAG’s mandate also includes auditing government companies, corporations, bodies, and authorities. The CAG’s audit reports are presented to the Parliament or the Legislature of the State or the Union Territory.
NFRA has proposed revisions to 40 auditing standards (SA), including SA 600 and SA 299, which pertain to group audits and joint audits, respectively. The Institute of Chartered Accountants of India (ICAI) has opposed these standards, arguing that they could adversely impact smaller firms and lead to unnecessary duplication of work. According to NFRA insiders, while the standards themselves may not directly pertain to auditing, they could indirectly change auditing practices, a modification that can only be authorized by the Ministry of Corporate Affairs (MCA).
The Solicitor General of India provided an opinion to the National Financial Reporting Authority (NFRA), stating that the ICAI lacks the authority to issue binding auditing standards or guidelines, as reported by informed sources.
Furthermore, ICAI can only take action against individual Chartered Accountants, not audit firms, according to these sources.
The authority to establish auditing and accounting standards resides solely with the government, specifically the Ministry of Corporate Affairs (MCA). “Neither NFRA nor ICAI have the power to set binding auditing standards. They can only make recommendations to the government, which holds the ultimate decision-making power to accept or reject these recommendations,” the source explained.
This legal opinion was sought in relation to the Standards of Quality Management 1 and 2 (SQM) presented by the Institute last month. However, ICAI representatives contend that these standards focus on quality management—as opposed to auditing standards—by providing firms with standard operating procedures (SoPs) and guidance to facilitate smooth operations and enhance quality management.