The Solicitor General of India has affirmed the rights of the National Financial Reporting Authority (NFRA) to issue Standards on Quality Management (SQMs) for auditing.
The ICAI Act, 1949, does not provide the Institute of Chartered Accountants of India with the authority to issue standards related to auditing or quality management, a senior government official said.
The opinion has been endorsed by all NFRA board members, including representatives from key regulators, including the Comptroller and Auditor General of India (CAG), the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi), he said.
“The ICAI is primarily an examination and certification body for chartered accountants. The NFRA sought the Solicitor General’s opinion, which confirmed that only the NFRA, as the statutory auditing and accounting regulator, has the authority to issue such standards. This has been communicated to the ICAI,” the official told Moneycontrol.
Dispute between NFRA and ICAI
The friction between the NFRA and the ICAI intensified in October 2024, when the ICAI unilaterally released revised Standards on Quality Management. It argued that since these are quality management standards, and not auditing standards, they do not require the NFRA’s approval. However, the NFRA strongly opposed this move, stating that all such standards fall under its jurisdiction as part of ensuring audit quality in India.
The ICAI’s attempt to release its own SQMs undermines the regulatory framework established to protect public interest. Audit quality directly impacts financial reporting, and it is critical to have a unified set of standards issued by the NFRA, another person aware of the development said.
NFRA’s Revised Standards on Quality Management
In its November meeting, the NFRA board approved its own Standards on Quality Management, proposing revisions to 40 such standards. These revised SQMs aim to align with international best practices and strengthen the overall quality framework for audit and assurance firms.
“The new SQMs are designed to adopt a risk-based approach, addressing governance, ethical standards, resource allocation, and monitoring mechanisms. They ensure that audit firms not only meet but exceed global quality benchmarks,” he explained.
The financial markets and the banking sector rely on credible, robust and consistent auditing practices. The NFRA’s authority to issue standards is critical to maintaining investor confidence and ensuring transparency in financial reporting and safeguarding the integrity of financial information.
The new standards come in place from April 1, 2026 after being notified by the Ministry of Corporate Affairs.
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