M P Vijayakumar, ED & Group CFO, SIFY Technologies Ltd, highlighted that the revised SA600 expands the group auditor’s role, requiring active coordination with component auditors. Aligning with ISA600, it impacts CFOs and audit committees. Effective April 2026, it mandates information sharing, risk assessment, and compliance, raising concerns about audit independence.
Everyone assumes that SA600 pertains solely to practicing chartered accountants and audit firms. However, that is not the case. If SA600 impacts anyone, it is the entity, the auditee, the CFO organisation, and the Audit Committee. They are the ones who will be significantly affected and will have to increase their planning, time allocation, and resource allocation to comply with the requirements of SA600.
As organisations grow, they often end up with three to five subsidiaries, one or two associates, and one or two joint ventures. Some of these may be overseas subsidiaries or small distribution or procurement companies. It’s impractical for the group auditor to audit all the entities within the group. Typically, at least 30-40% of the entities, if not in terms of economic value, at least in terms of count, will be audited by component auditors. In today’s context, the parent company management, the financial reporting group, the board, and the Audit Committee typically collate the financials, apply consolidation principles, and go through the audit and approval process.
Role of Group Auditors Becomes Crucial
However, you do not often find group auditors deeply engaging with the component auditors of various entities within the group, sharing their expectations, or discussing the risks they want to be assessed. There may be minimal dialogue, but not an extensive one. People typically perform the collation activity. But with the revised SA600, the group auditor becomes crucial. The group auditor must necessarily involve all the component auditors. These component auditors could be firms of different sizes, experiences, and brands, and you must integrate them into your engagement team. They will not be treated as separate audit firms but will be considered part of the group engagement team.
Whether a domestic subsidiary, an overseas subsidiary, or an overseas branch, that auditor will be treated as part of the parent company’s auditors’ engagement team. The engagement partner will decide how the work must be done to meet the expectations of signing off on the group audit. This represents a significant shift.
If auditors have to work seamlessly together, we often encounter situations within the organisation where most CFOs or even CEOs end up mediating between the auditor and our employees. This mediation, or “Panchayat” activity, extends beyond the internal organisation to include other audit firms, each with their own perspective.
Behavioural Issues to the Fore
Often, all parties will agree on the same thing, but just because you asked, they might withhold the information. This is a common psyche. As preparers, we often experience this behavior ourselves. I have been a preparer, standing before the auditor with financial statements. The natural tendency is to withhold information, especially when it is asked at the last minute. These are very human behavioural aspects.
Now imagine, with the pressures of quarterly audits, timelines, and managing an ecosystem of multiple auditors, where some auditors may be bigger than the group auditor or vice versa, bringing everyone together to do the work is no easy task. This responsibility now falls on the CFO’s organisation and the audit committee to ensure it all materialises.
Three Aspects
Whatever I share now are my personal views. I want to leave an important disclaimer. This is a very political and sensitive topic. I’m only sharing my own understanding and views on this.
I’ll address three main points. Firstly, the revised SA600 aligns with the international standard, ISA600. Of the 46 Standards on Auditing (SAs) issued by the Auditing and Assurance Standards Board (AASB) under the authority of the Institute of Chartered Accountants of India (ICAI), a significant number are either identical or substantially similar to the International Standards on Auditing (ISAs), with differences primarily arising to accommodate local laws, regulations, and the Indian context.
Secondly, I’ll give an overview of the current SA600 and the proposed changes that NFRA intends to implement, with a target effective date of 01/04/2026, subject to government approval and notification. NFRA’s recent circular emphasises that even the existing SA600 requires the principal auditor to continuously engage with other component auditors, identify potential risks of material misstatements, plan audit work accordingly, and form the final audit opinion.
Lastly, the circular states that the management, represented by the board of directors, must prepare consolidated financial statements, a principle that also applies to auditors. Auditors cannot disregard material misstatements made by component auditors. This stance was influenced by instances observed in corporate failures. Component auditors cannot withhold working papers from the group auditor.
Improving Quality of Audits
As per NFRA, which operates under the Companies Act, component auditors are legally required to share their relevant findings with the group auditor. This applies to audits of listed companies and certain unlisted companies meeting specified criteria, particularly those identified as Public Interest Entities (PIEs). This context explains the revision of SA600.
The current SA600 standard addresses the reliance on other auditors. It states that if the component audit is conducted by another chartered accountant or audit firm, the group auditor evaluates the competence and objectivity of the component auditor. In the audit report, the group auditor expresses an opinion on the group financial statements as a whole.
The revised SA600, aligned with ISA600, emphasises that the group auditor is solely responsible for the opinion on the consolidated financial statements. The group auditor must treat component auditors as members of the engagement team, plan and allocate work, oversee tasks, give instructions, and visit component locations if needed. This process must be documented continuously. Whether it’s the old or new SA600, the focus remains on improving the quality of audits at the group financial statement level.
In the current SA600, the terms used are “principal auditor” and “other auditor.” In the proposed SA600, these terms are replaced with “group auditor” and “component auditor.” Even in the existing standard, the principal auditor is responsible for the direction, supervision, and performance of the group audit engagement in accordance with the applicable standards. This is strongly emphasised by NFRA.
ICAI’s Concern
Regarding the proposed SA600, NFRA and the ICAI could have collaborated more closely to address concerns and ensure a smooth transition. All audit standards apply to all audits, with some standards having specific requirements based on the size or nature of the entity. The ICAI’s concern has been that the revised SA600 might disproportionately impact small and medium practitioners in a developing economy like ours.
NFRA has indicated that the revised standard will primarily focus on audits of Public Interest Entities (PIEs), potentially excluding certain public sector entities such as public sector banks and insurance companies (and their branches) to address concerns raised by small and medium practitioners while improving overall audit quality. The specific scope and applicability will be detailed in the final standard and related guidance.
The revised SA600 emphasises collaboration between the group auditor and component auditors, including sharing working papers, access to component auditor’s expertise, and visiting component locations if needed. The revised standard aims to improve the quality of audits at the group financial statement level.
The Institute of Chartered Accountants of India (ICAI) is a founding member of the International Federation of Accountants (IFAC) and has contributed significantly to global standards development over its 75-year history. Unlike some developed countries, India mandates audits for a wide range of entities, and only chartered accountants who are members of the ICAI and subject to its code of ethics can sign audited financial statements.
Globally, accounting firms from various countries may be involved in the audits of companies listed in other countries, subject to local regulations and recognition requirements. Of the G20 countries, most follow ISA 600 as it is or with minor modifications. The objective is to ensure consistent and high-quality group audits globally.
Highlights of the Revised SA600
Terminology: Consistent use of “group auditor” and “component auditor” throughout for clarity.
NFRA’s Role and Scope: Clarified NFRA’s role in setting and enforcing auditing standards, particularly for Public Interest Entities (PIEs).
ISA 600 Alignment: Emphasised the alignment of the revised SA 600 with ISA 600, while acknowledging potential differences to accommodate the Indian context.
ICAI’s Concerns: Acknowledged the ICAI’s concerns regarding the impact on small and medium practitioners and the efforts to address these concerns in the scope of the revised standard.
Component Auditor Responsibilities: Clarified that component auditors must share relevant findings with the group auditor and provide access to working papers.
Audit Report: Clarified that group auditor expresses an opinion on the group financial statements as a whole.
Global Practices: Provided more accurate context regarding global practices in auditing and financial reporting.
Effective Date: Clarified that target effective date of the proposed changes is 01/04/2026, subject to government approval and notification.
Historical Context of SA 600: The original SA 600 was established in 2002, prior to the widespread adoption of consolidated financial statements in India, which became mandatory around 2006 and later under the 2013 Act. Initially, only SEBI required it, but it was generally viewed positively.
Impact of Revised SA 600 on Auditor Responsibilities: Implementing the revised SA 600 may initially cause friction and challenges in collaboration between group auditors and company auditors. CFOs and audit committees need to ensure harmonious coordination.
Auditor Selection and Expertise: While hiring a single auditor for both the group and its components might seem easier, it could present challenges. Companies often prefer having their parent auditor “under check.” Component auditors with specialised expertise (e.g., in real estate or NBFCs) may be necessary, and regulatory rules may limit the number of audits a firm can perform in certain sectors.
Regulator’s Role: There are concerns that companies might use the new standard as an excuse to replace component auditors with the parent auditor, potentially compromising audit quality. The hope is that regulators will prevent such actions.
Compliance and Enforcement: The existing SA 600 was not always followed properly, prompting NFRA to introduce clearer guidelines and assign responsibilities to improve audit quality.
Maturity of the Audit Environment: Despite perceptions of poor audit quality, Indian audits and financial statements are often of high quality compared to global standards. The Indian business and regulatory environment is complex, and the reporting and disclosure requirements differ from those in other parts of the world. Continued maturity and improvement in the audit environment are expected over time.
Role of Regulators: Each regulator (e.g., NFRA, RBI, SEBI, IRDAI, and C&AG) has a distinct role. NFRA is responsible for recommending standards and taking disciplinary actions.
The Role of NFRA, its Impact and Concerns
NFRA’s Trigger and Role: The establishment of the NFRA was driven by the need to improve India’s ease of doing business ranking and to become a member of the International Forum of Independent Audit Regulators. The NFRA was created as an independent accounting regulator. It is responsible for recommending accounting and auditing policies and standards, monitoring compliance, and overseeing the quality of service in the accounting profession.
Concerns about NFRA’s Applicability: While statistics suggest NFRA’s direct oversight applies to a small percentage of companies, the economic value of these companies is significant. The NFRA’s applicability extends to companies listed on stock exchanges (in India or abroad) and certain unlisted public companies meeting specific financial thresholds.
Coexistence and Collaboration: There’s a call for collaboration between the NFRA and existing professional bodies like the Institute of Chartered Accountants of India (ICAI), recognising the ICAI’s historical contributions.
Emotional Factors: Emotional factors, such as the desire to retain a specific firm name, can sometimes influence decisions related to audits.
