A significant regulatory divergence has emerged between India's accounting rule-maker and its audit watchdog, leaving the government to decide the future framework for auditing large business groups. The Institute of Chartered Accountants of India (ICAI) has approved a revised auditing standard, while the National Financial Reporting Authority (NFRA) has already forwarded a stricter alternative to the Ministry of Corporate Affairs (MCA).
The Core of the Disagreement
The heart of the conflict lies in the approach to group audits, where a lead auditor oversees the consolidated financial statements of a parent company and its subsidiaries. The existing Standard on Auditing (SA) 600 allows the lead auditor to rely on the work done by the auditors of the subsidiaries, provided certain safeguards are followed.
NFRA, based on its enforcement experience, finds this model weak. The regulator argues that it leads to excessive reliance without adequate supervision, a flaw highlighted in multiple disciplinary orders. Consequently, NFRA's revised version of SA 600, approved last year, makes the group auditor unequivocally and solely responsible for the audit quality of the entire group and mandates their direct involvement in the subsidiary auditors' work.
In contrast, ICAI's Council, which approved its revised framework on 10 December 2025, has chosen a middle path. It proposes additional safeguards but retains the fundamental concept of reliance on other auditors. ICAI's revised SA 600 reinforces the lead auditor's overall responsibility while providing tools like the flexibility to review component records, perform direct audit procedures, and issue a modified opinion if necessary.
Two Standards, One Government Decision
The situation has created a unique impasse. Two versions of the same auditing standard are now in circulation, awaiting a final call from the government. Keshav Sehgal, partner at Ashok Maheshwary & Associates LLP, confirmed that the final structure, applicability, and timeline will only be known once the MCA completes the notification process.
ICAI, in a statement, expressed that its revised standard is written in clear language, better aligned to the Indian environment, and addresses regulatory concerns. It establishes a clear framework for reliance and sets accountability parameters for both principal and component auditors. The Institute's Auditing and Assurance Standards Board (AASB) finalized the draft on 4 and 8 December before the Council's approval on 10 December.
Regulatory Stance and the Path Forward
NFRA's position, however, appears firm. A person aware of the development stated that NFRA's approval of its stricter version, aligned with international rules, stands irrespective of ICAI's recent actions. The regulator's push for change stems from findings of fraud, negligence, and audit failure linked to the faulty application of the current SA 600.
This disagreement also played out within NFRA itself. During its meetings last year, eight of its eleven members supported the stricter revision, while the three ICAI members on the board dissented. The second anonymous source suggested that framing standards remains ICAI's forte, indicating the Institute's central role in the standard-setting process.
As the government deliberates, the accounting and auditing profession awaits a resolution that will shape the quality and accountability framework for group audits across Indian corporations. The outcome will determine whether the lead auditor's role is one of reinforced oversight or sole, undiluted responsibility.
