NFRA Chairperson Advocates for Global Accounting Standards to Strengthen Homegrown Audit Firms

Ajay Bhushan Prasad Pandey, Chairperson of the National Financial Reporting Authority (NFRA), emphasised the importance of adopting international standards to develop significant domestic accounting and auditing firms. He highlighted ongoing corporate failures in India, stressing the need for robust reporting and auditing systems. These remarks were made during a webinar on the Risk-Based Approach of ISQM-1, which focuses on building high-quality audit firms.

Representative image

Pandey noted that without aligning with global standards, creating world-class audit firms is impossible. He mentioned that over the past decade, corporate failures have amounted to approximately Rs 2 lakh crore. The NFRA has taken action against some auditors and firms for their roles in these failures. This underscores the necessity for stringent auditing practices.

Global Standards and Local Challenges

The NFRA's efforts to align with international standards are crucial for fostering large-scale domestic accounting firms. Pandey stressed that claiming current practices as optimal without global alignment is shortsighted. The aim is to ensure that Indian firms can compete on a global stage by adhering to these standards.

One area of concern is SA 600, which deals with the responsibilities of principal auditors in group audits. Pandey pointed out that there is ambiguity regarding these responsibilities. The NFRA's stance on SA 600 is not unique but aligns with international practices, aiming to clarify the role of principal auditors in group financial audits.

Addressing Audit Failures

On October 3, the NFRA highlighted issues with statutory auditors misinterpreting their obligations. It stressed that principal auditors must perform adequate procedures when auditing group financial statements. This follows observations of negligence and failures in group audits involving multiple companies.

Pandey reiterated the desire for India to have its own large accounting and auditing firms. However, achieving this requires implementing global standards in accounting and auditing practices. The NFRA's focus remains on ensuring high-quality frameworks to prevent future corporate failures.

The NFRA's commitment to adopting international standards aims to strengthen India's accounting and auditing landscape. By addressing current challenges and clarifying auditor responsibilities, the NFRA seeks to enhance the quality and reliability of financial reporting in India.