Widening the Scope of AQMM (v2.0) Key Announcement

Widening the Scope of AQMM (v2.0) Key Announcement

Earlier, AQMM was mandatory only for audit firms auditing Listed entities; Banks (other than co-operative banks, except multi-state co-operative banks); Insurance companies (Firms conducting only branch audits were excluded.).

Expanded Mandatory Applicability (Phased Manner):

S. No.	Category of Firms	Date of Applicability (Peer Review conducted on or after)
1	Firms auditing the Holding/Subsidiary/Associate/Joint Venture of: a) Listed entities b) Banks (other than co-operative banks, except multi-state co-operative banks) c) Insurance companies Note: Firms conducting only branch audits are excluded.	April 1, 2026
2	Firms (as per Peer Review Guidelines, 2022) proposing to undertake statutory audit of unlisted public companies having: – Paid-up capital ≥ ₹500 crores, or – Annual turnover ≥ ₹1,000 crores, or – Aggregate outstanding loans, debentures, and deposits ≥ ₹500 crores (as of 31st March of preceding FY)	April 1, 2026
3	Firms proposing to undertake statutory audit of entities that have: – Raised funds > ₹50 crores from public/banks/FIs during the review period, or – Are public interest entities including certain bodies corporate or trusts	April 1, 2027

Peer Review & AQMM Disclosure:

• AQMM v2.0 Mandatory Applicability: : For firms auditing Holding/Subsidiary/Associates/JVs of listed entities, banks (except multi-state co-op), and insurance companies: Effective from April 1, 2026. Other categories (large unlisted public companies, entities raising public funds) : April 1, 2026 / April 1, 2027.
• Disclosure Requirements under AQMM v2.0 Level : The AQMM v2.0 Level of each firm will now be Displayed on the ICAI website, hosted level-wise by the Peer Review Board, and Printed on the Peer Review Certificate issued to firms.
• AQMM level will appear on ICAI website and Peer Review Certificate. Peer Review validity remains 3 years. If your firm audits a subsidiary of a listed entity anytime between 1 April 2023 and 31 March 2026, you will fall under the AQMM mandate for the next Peer Review cycle.

How the 3 Preceding FY Rule Works

• For Peer Review sample selection, ICAI considers UDINs generated in the 3 financial years immediately preceding the date of applicability, not balance sheet years. If mandate is effective 1 April 2026, then the review window = 1 April 2023 to 31 March 2026. All UDINs generated during this period will be extracted for sample coverage.

Essence of the Update:

• ICAI has broadened the mandatory AQMM framework to cover a wider spectrum of audit firms, enhancing transparency and audit quality monitoring across entities of significant public interest.

Query on UDIN & Preceding FY :

ICAI uses preceding 3 financial years (not balance sheet years) for sample selection in Peer Review. If mandate effective 1.4.2026, then coverage period for UDIN extraction = 1.4.2023 to 31.3.2026. All UDINs generated in this window will be considered for sample selection.

Responses in this case: Impact on above query Case

• In this case Current Peer Review is valid up to 31 March 2025. Next Peer Review will be after 3 years (validity cycle), likely in FY 2028. Even if you audited a subsidiary before 31 March 2025, those UDINs will still be considered in the next PR cycle because ICAI looks at UDINs for the preceding 3 FYs from the PR date. So audits done before 31.03.2025 but falling in the UDIN window will be included. Current Peer Review up to 31.03.2025. Next Peer Review after 3-year validity : around FY 2028. If your firm audits a subsidiary of a listed entity before 31.03.2025, it will still fall under AQMM mandate for next PR cycle because:
  • ICAI looks at UDINs for preceding 3 FYs from the PR date.
  • So, even if audit was done before 31.03.2025, UDIN will be in the extracted range for sample selection.
• Audit work done before 31.03.2025 will still be considered in the next PR cycle if UDIN falls within the 3 preceding FY window.

Checklist: Minimum Expectations in Sample Audit/Assurance Files

Each sample audit/assurance file selected for Peer Review should contain the following key documents and evidences to demonstrate compliance with auditing and assurance standards, as well as PRB guidelines:

1. Clause 8 Communication : Copy of communication under Clause 8 of Part I of the First Schedule to the Chartered Accountants Act, 1949 (intimation to previous auditor), wherever applicable.
2. NOC (No Objection Certificate) : NOC from the previous auditor, in case of change of auditor, properly documented in the file.
3. Engagement Letter : Engagement Letter duly signed by the client prior to commencement of the audit, clearly defining the scope and terms of the engagement (SA 210 compliance).
4. Management Representation Letter (MRL) : Management Representation Letter duly signed and dated after completion of the audit (SA 580 compliance).
5. Team Member Checklists : Signed checklists by audit team members for areas handled, reflecting review and supervision procedures in line with SA 220 and SQC 1/Quality Control Standards.
6. Queries and Information List : List of queries raised and information sought during audit with corresponding management responses, evidencing proper communication and audit trail.
7. Audit Documentation : Comprehensive audit documentation maintained as per SA 230 (Audit Documentation) : including working papers, conclusions, and sign-offs.
8. KYC and Due Diligence : KYC documents and due diligence records for all new clients, ensuring compliance with the Code of Ethics and ICAI guidelines on client acceptance and continuance.
9. Evidence for Part B (Form 1) – 7 Parameters : Supporting documentation evidencing compliance with the seven parameters of Part B of Form 1, such as Infrastructure; Office systems and procedures; quality control policies; staff training and competence; Review mechanisms; Audit planning and documentation; Client confidentiality and independence safeguards.
10. Withdrawal Protocol (If Applicable) : In case the peer reviewer or Practice Unit is not satisfied during the process and wishes to withdraw, the PR may send a withdrawal request email to PRB. PRB will then issue a fresh list of three Peer Reviewers to the PU for continuation of the process.