ICAI’s Audit Quality Maturity Model (AQMM 2.0) – Applicability to PIEs and Trusts

The classification of trusts is broadly as follows:

(a) Private Trusts – Beneficiaries are specific individuals. Clearly, these do not fall under PIEs.
(b) Public Trusts – Beneficiaries are the public at large. The issue arises whether such trusts can be regarded as PIEs.

A. Interpretational challenges in identifying PIEs under Indian regulations

The AQMM itself does not define PIEs nor stipulate monetary limits. For guidance, one must turn to the ICAI Code of Ethics (clause R400.14), which defines PIEs to include:

(a) Listed entities; and
(b) An entity for which the audit is required by regulation or legislation to be conducted in compliance with the same independence requirements as apply to audits of listed entities.

The first limb is straightforward. The second, however, has given rise to interpretational challenges in India, particularly for charitable trusts, societies, and Section 8 companies.

(a) Charitable Trusts under the Income Tax Act, 1961 – Section 12A(1)(b) mandates audit if gross receipts exceed the basic exemption limit. However, there are no provisions regarding auditor rotation, partner cooling-off, or prohibition on non-audit services.
(b) Societies under the Societies Registration Act, 1860 – Audit is mandated, but there are no provisions paralleling listed-company independence norms.
(c) Section 8 Companies under the Companies Act, 2013 – Required to undergo audit under section 139(1). Auditor rotation under Rule 5 of the Companies (Audit and Auditors) Rules, 2014 applies only when thresholds (e.g., ?10 crore capital or ?50 crore borrowings) are met. Many Section 8 companies fall outside these limits, and even when applicable, the requirements are not fully identical to listed-entity norms.

Thus, these categories generally do not qualify as PIEs.

B. Entities in trust form that are “PIEs”

Certain entities structured as trusts but regulated by SEBI are subject to auditor independence norms identical to listed entities. These include:

(a) Mutual Funds (MF Trusts) – Governed by SEBI (Mutual Funds) Regulations, 1996. Auditor rotation and restrictions on non-audit services are mandated.
(b) Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) – Governed by SEBI regulations, which require auditors to comply with listed-entity independence requirements.

Therefore, Mutual Funds, REITs, and InvITs clearly fall within the ICAI’s definition of PIEs.

At present, the wording is vague and capable of different interpretations, which could result in inconsistent application by audit firms and regulatory uncertainty. The wording “audit required by regulation or legislation” can be misunderstood as any statutory audit.

But the critical qualifier—”in compliance with the same independence requirements as apply to audits of listed entities”—excludes most Indian charitable and non-profit audits.

It has following practical implications:

(a) If the literal interpretation is adopted, even firms auditing small charitable trusts (say, with receipts of only a few lakhs) will be subject to AQMM compliance, which appears disproportionate and unintended.
(b) If the purposive interpretation is adopted, only large and systemically important trusts (e.g., those handling hundreds of crores in donations, universities, large hospitals, provident/pension funds) should be considered PIEs, in line with the international concept of “public interest entities.”