SQM1 outlines the design and operation of quality management systems for audits. Credit: chaylek/Shutterstock.

The National Financial Reporting Authority (NFRA) has received clarification from the Solicitor General of India (SGI), Tushar Mehta regarding the Institute of Chartered Accountants of India (ICAI). 

He confirmed that the ICAI is not authorised to independently issue or amend standards on quality management (SQMs) or auditing norms.  

This confirmation comes after the ICAI’s recent introduction of new SQMs to modify auditing standards in October 2024, which required a legal opinion on the matter. 

According to a report by The Economic Times, the NFRA had sought the opinion of the Solicitor General following the ICAI’s actions.  

In a detailed 24-page communication, SGI Tushar Mehta stated that the ICAI’s powers under the proviso to Section 143(10) of the Companies Act are transitional and do not extend to creating or notifying SQMs or modifying existing standards of auditing (SAs).  

This legal assessment supports NFRA’s position, which disputes ICAI’s jurisdiction over these matters. 

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Standard on Quality Management (SQM) deals with a firm’s responsibilities to design, implement and operate a system of quality management for audits or reviews of financial statements, or other assurance or related services engagements.  

The introduction of SQM1 and SQM2 by the ICAI, along with 16 related changes to auditing norms in last October, aimed at enhancing quality control within accountancy firms.  

SQM1 outlines the design and operation of quality management systems for audits and reviews of financial statements, while SQM2 pertains to engagement quality reviews, including the eligibility and responsibilities of reviewers. 

The NFRA had previously expressed concerns about these developments, viewing them as contrary to the legislative framework.  

The authority is keen on aligning India’s audit standards with global benchmarks.  

Recently , the ICAI announced that 11,500 candidates had successfully qualified as Chartered Accountants (CAs) in the CA Final 2024.  

The exams saw a participation of 66,987 candidates for group one and 49,459 for group two, with pass percentages of 16.8% and 21.36%, respectively.