NFRA plans to engage with audit panels of big companies to curb frauds

Jan 18, 2024 

The National Financial Reporting Authority (NFRA) is planning to directly engage audit committees of large listed companies to sensitise them about accounting standards and their role, a first-of-its kind regulatory outreach to curb corporate frauds, people aware of the watchdog's thinking told ET.

The audit regulator is firming up a mechanism to hold regular huddles with the audit committees, said one of the persons, who did not wish to be identified.

These committees comprise mainly independent directors and oversee the statutory audit compliances of companies. "The audit committee of public interest companies could be invited by the NFRA for discussions. The idea is to ensure an effective two-way communication between the auditors and the audit committees of these companies all through, as stipulated by audit standards," the person said. Under Section 177 of the Companies Act, the boards of listed companies, among others, are mandated to set up audit committees. Such a committee must have at least three directors, with the majority being independent ones. The NFRA could apprise the audit committees of the kind of questions they should regularly ask their auditors and what their expectations from the auditors should be, the person said. The outreach is the latest in a series of steps being weighed by the audit watchdog to ensure early detection of corporate fraud or stress and bolster the overall audit ecosystem.

Vishesh C Chandiok, chief executive at Grant Thornton Bharat, termed the move a step in the right direction. "Audit quality requires all market participants to play their role, and the regulator and audit committees are two critical lines of defence in this context," he said.

A Deloitte partner, who did not wish to be identified, said, "This initiative holds the potential to enhance transparency, ensure robust adherence to accounting standards and fortify the financial reporting ecosystem."

[ET CFO]