NFRA says biggest focus is to ensure that auditors do their job properly
Sep 25, 2023
Chairperson Ajay Bhushan Pandey says auditors’ certification of the true and fair view of the company’s financial statement inspires confidence in all stakeholders including investors both domestic and foreign.
India’s independent accounting regulator, the National Financial Reporting Authority (NFRA), has the biggest focus on ensuring that the country’s auditors do their job properly, its Chairperson Ajay Bhushan Pandey told ETCFO in an exclusive interview.
In the recent few years, auditors have come under the regulatory spotlight amid rising business failures and accounting frauds including the ones taking place atIL&FS, PNB, DHFL, etc.
NFRA was constituted in October 2018 as the country’s own audit independent watchdog on similar lines to the Public Company Accounting Oversight Board (PCAOB) in the US and the Financial Reporting Council (FRC) in the UK. Edited excerpts from the interview.
Q: What would be the NFRA’s top focus areas in the next couple of years?
Ajay Bhushan Pandey: Our biggest focus would be to ensure auditors do their job properly and comply with auditing standards. Their certification of the true and fair view of the company’s financial statement inspires confidence in all stakeholders including investors both domestic and foreign. Likewise, companies should prepare true and fair accounts and comply with accounting standards.
Q: How does NFRA plan to achieve its aim?
Ajay Bhushan Pandey: We keep on examining the role of auditors in cases referred to us by agencies like the Registrar of Companies (RoC), or other regulators like the SEBI, RBI etc. Also, we suo moto examine the role of auditors in various instances on the basis of our own inspections and analysis. We are increasingly using technology and tools like Artificial Intelligence (AI) to filter out cases that show early warning signs of audit or accounting failures.
And, in addition, we are also working to increase awareness among other members of the Audit Committees and Independent Directors over their role in ensuring the integrity and truthfulness of the financial statements.
In addition, NFRA has to ensure that our Accounting and Auditing Standards are reviewed regularly and make recommendations to the central government for necessary amendments.
The NFRA was set up in October 2018 and soon it had to go through a difficult period of COVID during its initial years. Also, NFRA is a new regulator. As it happens to any new regulator, more than 30 cases have been filed in various High Courts challenging the legislation, jurisdiction of NFRA, etc.
NFRA is actively pursuing those cases in the courts for their early disposal. Yet NFRA has been able to do significant preparatory work, has been able to establish itself and has passed more than 50 orders during the last one year or so. Also, it has made several recommendations to the central government over amendments to Accounting Standards. This is at par with the international benchmarks.NFRA Chief Ajay Bhushan Pandey
We have also issued several circulars to the companies and auditors on fraud, and non-accounting of interest in NPA cases. etc.
Q: What challenges do you foresee in the road ahead?
Ajay Bhushan Pandey: We don’t foresee any major challenge but given that our mandate is to oversee the financial reporting of some 6,000-7,000 public interest entities that are there today, it would require us to strengthen our current infrastructure. As of today, we have a team of about 20-25 chartered accountants, and going forward, we will be looking at further capacity building.
Having said so, our expansion would be gradual and need-based, and one that will increasingly focus on technology and AI tools. Also, we will continue to reskill talent so as to ensure we are always one step ahead of the game and know all modus operandi that could be used on the other side of the fence to game the system.
[ET CFO]
