NEW DELHI: Institute of Chartered Accountants of India’s (ICAI) stand taken in a disciplinary case in the Delhi High Court is being seen at variance, with its plea on the recently released Standard on Quality Management (SQM) covering services provided by audit firms.
ICAI has argued that the Companies Act governs audit standards, which are notified by the ministry of corporate affairs, based on recommendation by the National Financial Reporting Authority (NFRA), the regulatory body dealing with auditors and audit firms for listed and large companies.
“SQM 1 and SQM 2 are quality management standards and these are not auditing standards. SQM 1 and SQM 2 apply at the firm’s level for all services rendered by firms. The objective of these standards is to enhance and ensure quality at the firm’s level for all services rendered by firms,” it told TOI in response to a recent query.
In HC, however, last year, ICAI counsel argued that they have no jurisdiction over audit firms in disciplinary cases. Under the law, only chartered accountants can be members and the power to decide on small firms is currently not exercised by any regulatory body, sources explained.
Seeking to plug regulatory gaps, NFRA has been pushing ICAI to align the standard on auditing (SA) 600 with global norms, an issue on which it finally issued a draft and will be discussed at the next meeting of the authority this month. In the meanwhile, ICAI has issued SQM, setting the stage for a possible flashpoint as NFRA has argued that it could result in ambiguity on how it can be implemented if the institute does not have jurisdiction over firms.
When asked, the institute said: “This move by ICAI will not create any confusion for professionals and audit firms. Presently, we have SQC 1 for quality control at firm level which is being replaced by SQMs i.e., SQM 1 and SQM 2, so the profession has the clarity on how quality standards work at firm level. SQM 1 and SQM 2 are to be implemented on a recommendatory basis by April 1, 2025, and will become mandatory by April 1, 2026. So, sufficient period of time has been provided to the audit firms for implementation of these standards.”
