A New Era for Auditing Standards in India

2025 has been a pivotal year for audit regulation in India, marked by NFRA’s ambitious initiative to overhaul the national audit framework. The National Financial Reporting Authority, chaired since July 2025 by Nitin Gupta, placed a suite of 40 revised auditing and audit quality management standards before the Ministry of Corporate Affairs for notification—reflecting a strategic alignment with global norms and stronger audit quality expectations.

These revised standards, to be rebranded as Indian Standards on Auditing (IndSAs), will modernise the audit rulebook and are expected to take effect from April 1, 2026, offering an extended transition timeline for firms to adapt.The reforms include updated quality management standards (SQM1, SQM2) and enhanced responsibility requirements for audit engagements, especially in complex group audit scenarios.

Complementing the standards overhaul, NFRA embarked on nationwide outreach programmes and an ‘Audit Firms Survey 2025’ to address persistent audit quality issues. These initiatives emphasise professional scepticism, documentation quality, and proactive engagement with firms of all sizes—signalling a shift from reactive enforcement to collaborative enhancement of audit practices.

Ind AS Amendments and Progress on Ind AS 118

Accounting standards underwent significant updates this year as the Ministry of Corporate Affairs (MCA) notified the Companies (Indian Accounting Standards) Amendment Rules, 2025. Key revisions to Ind AS standards included enhanced disclosure requirements in Ind AS 7 (Statement of Cash Flows), updated tax treatments under Ind AS 12 (Income Taxes), clarity on foreign exchange rate effects in Ind AS 21, and refined terminology in revenue recognition under Ind AS 115

These changes—effective for financial years beginning April 1, 2025—aim to strengthen alignment with global practices, increase transparency, and improve financial reporting relevance for stakeholders. Parallelly, ICAI’s Accounting Standards Board issued an exposure draft of Ind AS 118, focused on presentation and disclosure in financial statements, reflecting ongoing convergence with the International Financial Reporting Standards (IFRS) as part of broader global harmonisation efforts.

Ethics Modernisation: ICAI’s Code of Ethics Updates

Professional ethics also saw significant evolution in 2025. The Institute of Chartered Accountants of India (ICAI) released a revamped Code of Ethics, aligning closely with the International Ethics Standards Board for Accountants (IESBA) 2024 Code and incorporating guidance on contemporary challenges including AI and sustainability assurance.

The updated ethical framework, set to be effective April 1, 2026, introduces modernised standards across Volumes I, II, and III, emphasising independence, integrity, and adaptability in a technology-driven environment. ICAI’s revisions also propose new norms for advertising and professional visibility for CA firms—a shift from earlier, more restrictive practices—alongside robust guidance to mitigate conflicts of interest.

Public consultation on the Exposure Draft of the 13th Edition of the ICAI Code of Ethics engaged professionals nationwide, underscoring the community’s role in shaping ethical standards that reflect evolving regulatory and technological dynamics.

Balancing Audit Quality and Technological Innovation

The integration of AI and advanced data analytics emerged as defining themes in India’s audit transformation narrative in 2025. Across audit practices, technologies such as machine learning, natural language processing, robotic process automation (RPA) and audit data analytics are enhancing efficiency, accuracy, and depth of insights while transforming how audit evidence is assessed.

AI-enabled tools are increasingly deployed to automate routine tasks, analyse large volumes of accounting data, flag patterns and anomalies, and support real-time risk assessments—enabling auditors to focus on higher-order professional judgement and interpretation of complex information.Nevertheless, the rise of AI brings fresh challenges, including data quality, ethical considerations, and the need for auditors to maintain expertise in interpreting technology-generated insights.

This convergence of human and machine capabilities reflects a broader trend: technology enhances but does not replace the nuanced professional judgement and scepticism that underpin high-quality auditing.

Looking Ahead: Modernisation with Purpose

As 2025 closes, India’s accounting and auditing ecosystem stands at a crossroads of regulation, technology, and professional practice. Reforms in auditing standards, accounting principles, and ethical frameworks reflect a collective drive towards greater transparency, global alignment, and innovation. At the same time, regulators and professional bodies continue to emphasise the paramount importance of audit quality and ethical rigor.

Source : economictimesGPT