Regulatory updates

The National Financial Reporting Authority (NFRA) on 3 October 2024 issued a circular detailing the responsibilities of Principal Auditors and Other Auditors in group audits (the circular). The circular clarifies auditors' obligations under the Companies Act 2013 and existing requirements in SA 600, "Using the Work of Another Auditor," and related standards ensuring consistent interpretation with the Companies Act, 2013, Standard on Quality Control (SQC), and other applicable auditing standards.

Key points covered in the circular include:

• Principal auditors’ responsibility: The principal auditor is ultimately responsible for reporting on group financial statements and must ensure that significant risks of the group companies are addressed. While SA 600 does not specifically mention reviewing the audit work papers of component auditors or other auditors by the principal auditor is required, such a review may be necessary to gather sufficient appropriate audit evidence and form an appropriate opinion on the group financial statements and should be done by an auditor in appropriate cases, in exercise of his professional duties, professional skepticism and professional judgement. The circular states that the requirements of the standards on auditing, which are governed by the Companies Act, 2013 would override the provisions of the Chartered Accountants Act, 1949, which prohibits a chartered accountant from disclosing confidential information of his/her client with any person other than his/her client³ Currently, chartered accountants in practice do not share workpapers with group auditors citing prohibition under this clause.. Currently, chartered accountants in practice do not share workpapers with group auditors citing prohibition under this clause.
• Understanding Professional Competence of Component Auditors: Paragraph 11 of SA 600 requires the principal auditor to assess the professional competence of another auditor when planning to use their work, especially if the other auditor is not a member of the ICAI. This provision does not imply that the principal auditor should not or cannot evaluate the professional competence of the other auditor in the context of the specific assignment even if the other auditor is a member of the ICAI. The NFRA emphasises that professional competence includes experience, relevant skills, sectors audited, complexity of audit assignments handled, and availability of adequate resources, beyond just acquiring a professional degree or certification.
• Interpreting Standards on Auditing: The word "should" in SA 600 implies mandatory responsibilities of auditors and is not recommendatory. Principal Auditors must perform all procedures specified in SA 600 and related standards in fulfilment of their obligations under the 2013 Act, unless they have valid reasons for carrying out alternative procedures that achieve the same objectives without materially impacting their opinion on the accounts being true and fair.

This circular applies to auditors of all entities covered under Rule 3 of NFRA Rules 2018 (i.e., Public Interest Entities (PIEs) and large Non-PIEs) with immediate effect i.e. 3 October 2024.

To access the circular, please click here