'Audit committees should learn from past lapses flagged by NFRA'
New Delhi, June 1, 2024
Audit panels should engage in frequent, thorough engagements with auditors and ensure the adequacy of internal financial controls in the company, NFRA chairperson said
Audit committees must proactively learn from previous audit failures flagged by the National Financial Reporting Authority (NFRA) in other companies to avoid similar mistakes, said NFRA chairperson Ajay Bhushan Pandey.
Speaking at an event organized by industry body Assocham on Friday, Pandey said audit committees in companies have to fully use the institution of auditors and engage with them regularly to detect potential irregularities.
He said audit committees, primarily comprising independent directors, should engage in frequent and thorough discussions with auditors. “Making one or two-hour presentation to the audit committee is not enough. Audit committees should have more frequent meetings and extensive discussions with auditors," said Pandey.
The chairperson of the regulatory body overseeing auditors suggested the audit committees ask statutory auditors of their company to ensure the company’s accounts are thoroughly checked keeping in mind the failures detected in other companies.
These could be in the areas of related party transactions or inter-corporate loans. Pandey cited an instance where ₹3,500 crore was diverted from an entity to a subsidiary and then to another company linked to its major shareholder. The audit committee of the main listed entity should have questioned the objective of the fund transfer in this case, Pandey said.
Pandey also emphasized the need to ensure the adequacy of internal financial controls in the company.
Mint last week reported, quoting sources, that India's top eight auditors will be inspected, and the financial statements of up to 60 of their clients vetted this year, as the national audit watchdog widens its efforts to enhance audit quality countrywide.
The NFRA, which last year inspected five auditors involving audit reports of 24 clients, is planning to expand the exercise.
[Mint]
