NEW DELHI: The Institute of Chartered Accountants of India (ICAI) late Monday released new Standard of Quality Management (SQM), laying down the quality standards for CAs and audit firms, a move that is expected to set the stage for a fresh confrontation as the law mandates that these should be notified by govt based on recommendations by the National Financial Reporting Authority (NFRA).
NFRA is the regulator for auditors and firms dealing with listed and large companies, while ICAI is the regulator for other CAs. The two agencies have been engaged in a tussle over audit standards dealing with companies that have subsidiaries or branches audited by other auditors, with NFRA seeking to plug the gap by aligning them with global norms, an exercise that has not been done for two decades. It has argued that the lack of coordination between group auditors and auditors of subsidiaries resulted in massive siphoning of funds from several companies including IL&FS, Reliance Capital, DHFL and Cafe Coffee Day.
Along with this, NFRA has also been pressing for revision of the SQM, arguing that it is key to ensuring quality of audit by ensuring independence and proper supervision by the firms. The issue was discussed at the last board meeting around 45 days ago where ICAI was asked to submit the draft. ICAI has, however, gone ahead and released it after arguing at the meeting that under the Companies Act only standards of audit (SAs) fall under the law.
At the meeting, ICAI was told that two agencies dealing with SAs and SQM would adversely impact “coherent audit quality framework and its enforcement in the country”. RBI, Sebi and CAG representatives as well as two part-time members R Narayanaswamy, who was a professor at IIM Bangalore, and Sanjay Kallapur, from ISB, had backed NFRA’s stand and sought a notification by govt. ICAI was then asked to send the draft SQM within three weeks as the draft had been issued earlier. Instead, it has gone ahead and released SQM along with changes to some SAs, which are seen to be in violation of norms.
ICAI did not respond to a questionnaire sent on Tuesday evening. “This kind of a situation is not good for the profession,” said a top CA.
