In 2018, the National Financial Reporting Authority (NFRA) was established as an accounting watchdog. Recently, an official shared plans for NFRA to inspect major audit firms, including the Big Four, and other top auditors of large listed entities in 2024.
Previous Inspection and Corrective Measures
In December 2023, NFRA released a report highlighting deficiencies in the audit processes of major firms, including Deloitte, EY, KPMG, and Price Waterhouse Chartered Accountants. The inspection aimed to ensure corrective measures, as outlined in the December report, were implemented.
Selection Criteria for 2024 Inspection
NFRA will choose entities for inspection based on large companies listed on exchanges. The selection involves assessing financial statements and identifying potential issues, or “risky parameters.” Auditors serving these companies will then be selected for inspection.
Findings from 2023 Inspection Reports
In the 2023 inspection reports, NFRA found major auditors providing non-audit services to clients, leading to conflicts of interest and lapses in the auditing process. Other identified issues included improper communication with company directors and a lack of documentation for assessments.
Inspection Criteria and Standards
NFRA follows regulations from the Companies Act, 2013, and audit standards established by the Institute of Chartered Accountants of India. This includes the Code of Ethics, which addresses threats related to self-interest, self-review, advocacy, familiarity, and intermediation.
NFRA Chairperson Ajay Bhushan Pandey stated that the watchdog plans to take further actions against defaulting auditors in 2024, covering both instant cases and pre-2018 cases. This decision aligns with the National Company Law Appellate Tribunal’s ruling in December, providing clarity on NFRA’s retrospective jurisdiction.