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moreWe are pleased to share with you our recent publication on – ‘NFRA releases minutes of SA 600 revision meeting.’
NFRA releases the minutes of its 17th meeting held on August 26, 2024, where the proposal for revision to SA 600 and SQMs was presented and it was agreed to put the proposed revisions out for public comments, so as to plug the loopholes as fast as possible in view of recent large scale corporate scams; Minutes state that, "NFRA’s reasons for proposing the changes at this juncture, were interalia, its findings from its oversight and enforcement work which indicated fraud, negligence and audit failure emanating from a faulty application of SA 600 and a tendency on part of Principal auditors to rationalize their actions under the existing provisions of SA 600."
According to the minutes, the combined effect of corporate frauds in like Reliance Capital, Reliance Home Finance, Reliance Commercial Finance, Coffee Day Global, DHFL and audit quality review of IL&FS amounted to tens of thousands of crores in the financial and capital market, since auditors had overlooked all indications of fraud and issues of going concern in the holding company and its subsidiaries which were present and flagged to them, and tried to rationalize their gross negligence by taking shelter behind the provisions of SA600; Thus, the minutes point out that the key provisions of SA 600 not being in consonance with the Companies Act and Chartered Accountants Act, need to be revised for better quality audits of financial statements; Minutes also state that the members considered the proposal recommending revisions to Quality Management Standards, which are "...the starting point which lay down the framework and requirements of an audit quality management system and cover quality requirements for both the firms and individual audits. SAs are in fact premised on an audit firm following quality management requirements and the SQMs are referred to in hundreds of places in the SAs."; The Minutes highlight ICAI President's concerns w.r.t. the proposed revisions, where according to him, "...in the case of Coffee Day Global Enterprises, NFRA has invoked SA 600, so the standard as it exists today, is not toothless. Principal auditor today also can perform additional procedures and reach out to the component auditor. There is also scope for improvement, debate, discussion and we should continue to do that. NFRA and ICAI are both to protect public interest."; President said that they would like to again discuss and debate this matter in the Council and come back to NFRA with views, and he would not prefer any recommendation from NFRA without ICAI recommending some proposal; President, ICAI also said that concentration of audit work should not happen, and added "Also, if Standard is so rigorous, people will not take up the audit profession."; Minutes also mention that that the other authorities like SEBI, RBI and CAG had also agreed to the revisions in SA 600 and SQMs as well as outline the opinions of all NFRA Members w.r.t. the proposals: NFRA
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