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The National Financial Reporting Authority plans to adopt the revised International Standard of Audit 600 (ISA 600) to enhance auditor oversight and address significant audit lapses. To advance this initiative, NFRA will convene a meeting next week with key financial regulators, including the Reserve Bank of India, the Securities and Exchange Board of India, the Institute of Chartered Accountants of India, and the ministry of corporate affairs.
The revision of this standard is intended to strengthen the responsibilities of group auditors in overseeing the work of component auditors. Currently, there are numerous instances where audit reports from subsidiary companies are used to validate the financial health of the parent company. Industry insiders believe this practice is one way in which funds from listed companies are siphoned off, exploiting loopholes in the current system. As principal auditors often rely on subsidiary audit reports, malfeasance can go undetected.
NFRA’s response is prompted by several high-profile cases where auditors failed to report fraudulent activities, such as in the Coffee Day Enterprises Ltd case. In that instance, the regulator found that auditors neglected to report the fraudulent diversion of funds, despite evidence showing that public money was being channelled to an entity controlled by the promoter, which had no legitimate business ties to the listed company.
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