Module: | Statutory Audit, NFRA & ICAI Standards
Q73: Consider the following statements regarding the revised Standard on Auditing (SA) 600 concerning Group Audits, proposed by the NFRA in late 2025:
1. The revised SA 600 places the ultimate responsibility of the consolidated group audit entirely on the principal auditor, effectively eliminating the concept of divided responsibility.
2. Under the new framework, the principal auditor is strictly prohibited from reviewing the working papers of the component auditors who audited the subsidiary companies.
3. The ICAI officially opposed the NFRA's revision of this standard, arguing that making the principal auditor fully liable would lead to a massive concentration of audit work among a few large accounting firms.
Which of the above statements is/are incorrect?
2. Under the new framework, the principal auditor is strictly prohibited from reviewing the working papers of the component auditors who audited the subsidiary companies.
3. The ICAI officially opposed the NFRA's revision of this standard, arguing that making the principal auditor fully liable would lead to a massive concentration of audit work among a few large accounting firms.
Which of the above statements is/are incorrect?
✅ Correct Answer: B
🎯 Quick Answer:
B. Only 2 is incorrect.Structural Breakdown: Statement 1 is correct; aligning with international standards (ISA 600), the NFRA revision removed the "divided responsibility" clause, making the principal auditor fully accountable for the entire group's financials.
Statement 2 is incorrect; the revised standard explicitly empowers and requires the principal auditor to review the working papers of the component auditors to ensure quality control, rather than prohibiting it.
Statement 3 is correct; the ICAI argued that holding the principal auditor entirely liable would force them to fire small regional component auditors and audit all subsidiaries themselves, harming small practitioners.
Historical/Related Context: Under the old Indian standard, the principal auditor could simply state they relied on the subsidiary auditor's report, washing their hands of any fraud occurring in the subsidiaries (a loophole heavily exploited in the Coffee Day and IL&FS scandals). Causal Reasoning: You cannot hold a principal auditor legally accountable for the entire consolidated balance sheet without simultaneously giving them the unrestricted right to access and review the underlying evidence (working papers) gathered by the component auditors.