NFRA Board revises all audit standards despite ICAI dissent on some; likely effective from FY26

NFRA recommended the implementation of the revisions to the government from 1 April 2026, the ministry of corporate affairs said in a statement, marking a major shift in the norms governing statutory audit of companies.

NFRA, formed in 2018, has taken the lead in revising the audit standards and getting them notified as government rules—an overdue requirement that was written into the law in 2013. 

The new Companies Act of 2013 that replaced the 1956 law mandated changes to the statutory audit regime following the Satyam Computers scandal of 2009. 

Revising standards

The ministry said NFRA has referred to the government the revised 38 audit standards, including those dealing with audits of consolidated financial statements of business groups, joint audits and financial statements prepared under special purpose frameworks, as well as two quality control standards. These are to be notified under the Companies Act. 

Mint reported on Monday that NFRA had kicked off an epic overhaul of the way auditors verify the truthfulness of corporate financial information, in a change of regime from the current system where auditing standards issued by ICAI are deemed to be final.

The ministry said that out of 11 board members of NFRA attending the meeting, eight, including the representatives of CAG, RBI and Sebi, were in support of proposals for revision of audit standard for group financial statements – known as SA600 standard on joint audits—SA299, revision of standard on quality control and three other audit standards. 

But three ICAI representatives, who are part of board, “expressed their disagreement” to the four proposals. 

A person informed about ICAI’s position and the discussions that took place at the board meeting said that of the 40 audit standards recommended by NFRA to the government for notification, 38 were accepted as recommended by ICAI. 

However, ICAI expressed strong concerns over the revised SA 600 and the revised SA 299.

“ICAI is of the view that the existing SA 600 has all the power and if required, it can be strengthened but aligning the framework with the International standard on auditing or ISA 600 is not desirable,” the person said.  

In the case of the standard on joint audits, ICAI expressed the concern that the changes could lead to duplication of work and increased costs. 

“While ICAI’s standard is based on the concept of a division of responsibility among joint auditors, the NFRA emphasizes on joint responsibility. Additionally, ICAI’s standard does not require a cross-review of the work done by joint auditors, whereas the NFRA mandated such cross-reviews,” said the person, who is aware of ICAI’s position on the changes. 

“In line with the practice followed globally in countries such as UK, Australia, Singapore, the Authority also decided to recommend to the Central government to name the auditing standards as IndSAs. Upon the approval of the Central government, these standards are recommended to be effective from 1 April 2026,” the ministry said in a statement.

This is a “historic moment for auditing and corporate governance in India,” a second person who is also informed about the NFRA board discussions said on condition of not being named.

Queries emailed to ICAI on Tuesday evening seeking comments for the story remained unanswered at the time of publishing. 

The Satyam Computers scandal, which led the government to supersede that company’s board in 2009, eventually led to the Companies Act proposing a new audit regulator. The Companies Act of 2013 mandated that auditing standards of ICAI have to be notified by the Central government in consultation with and after examination by NFRA. Till then, ICAI standards will be deemed to be good enough. This is set to change from FY26. 

In the Satyam Computers scandal, the auditors faced questions about how the company had manipulated financial statements but ICAI was only empowered to take action against individual auditor partners, not audit firms.