Module: | SEBI LODR & Corporate Governance Frameworks
Q26: Consider the following statements regarding the transition to Indian Standards on Auditing (IndSAs) proposed by the National Financial Reporting Authority (NFRA) for 2025-2026:
1. NFRA proposed a comprehensive transition from the existing Standards on Auditing (SAs) to revised Indian Standards on Auditing (IndSAs), slated to take effect from April 1, 2026.
2. The revised framework introduces updated quality management standards, specifically SQM 1 and SQM 2, to replace the older quality control standards.
3. The transition includes enhanced responsibility requirements for audit engagements, specifically targeting complex group audit scenarios.
Which of the above statements is/are correct?
2. The revised framework introduces updated quality management standards, specifically SQM 1 and SQM 2, to replace the older quality control standards.
3. The transition includes enhanced responsibility requirements for audit engagements, specifically targeting complex group audit scenarios.
Which of the above statements is/are correct?
✅ Correct Answer: D
🎯 Quick Answer:
D. All statements 1, 2, and 3 are correct.Structural Breakdown: Statement 1 is correct; 40 revised standards have been put forward for MCA notification with an effective date of April 1, 2026.
Statement 2 is correct; SQM 1 and SQM 2 represent a shift from a compliance-based quality control approach to a proactive, risk-based quality management approach at the firm level.
Statement 3 is correct; strengthening auditor responsibilities during group audits (where multiple subsidiaries are involved) is a cornerstone of the reform.
Historical/Related Context: Following persistent gaps in audit quality highlighted by recent corporate defaults, the NFRA aggressively pushed these standards to eliminate ambiguities in how audit firms manage internal quality and oversee complex, multi-tiered corporate clients.
Causal Reasoning: Rebranding to IndSAs and enforcing SQM 1/SQM 2 ensures that audit firms treat quality management as a continuous operational imperative rather than a year-end checklist, thereby restoring investor confidence in financial disclosures.