Finance panel seeks sector-specific audit studies, faster NFRA reforms
Aug 11, 2026
A parliamentary panel urged faster reforms at the National Financial Reporting Authority. It recommended separating audit quality review and disciplinary functions for clarity. The committee also called for improved systems to track regulatory cases effectively. The government stated amendments are included in the Corporate Laws (Amendment) Bill, 2026. Sector-specific studies are also planned to address industry accounting challenges.
The Standing Committee on Finance has recommended faster reforms at the National Financial Reporting Authority (NFRA), including expediting the clear separation between audit quality review and disciplinary functions, stronger case-tracking systems and sector-specific studies to address accounting and audit challenges across industries.
According to the committee, NFRA has received 252 complaints and matters so far, of which 139 have been disposed of while 113 remain under process. The panel noted that NFRA had not issued any final order in the past one year. The committee, headed by BJP MP Bhartruhari Mahtab, laid its report in both Houses of Parliament on Monday.
The panel said ongoing judicial proceedings and restrictions on NFRA’s ability to issue final disciplinary orders had created a temporary gap in the audit regulator’s enforcement framework. It recommended that the Ministry of Corporate Affairs expedite legislative or regulatory changes under the Companies Act, 2013 to provide greater clarity on NFRA’s processes and strengthen the credibility of the audit oversight framework.
In response, the government has said amendments addressing the issues flagged by the committee have been included in the recently introduced Corporate Laws (Amendment) Bill, 2026. It also informed the committee that NFRA has formed divisions headed by the Chairperson and full-time members, as feasible, and has sought removal of the bar on passing disciplinary orders before the Supreme Court. The matter is sub-judice.
The recommendation follows the Delhi High Court’s February 7, 2025 judgment, which, while upholding several aspects of NFRA’s legal framework including its retrospective jurisdiction, quashed 11 show-cause notices/orders and observed that audit quality review and subsequent disciplinary proceedings should be separated. NFRA has challenged the judgment before the Supreme Court.
Panel seeks better tracking of NFRA cases
The committee also flagged gaps in NFRA’s data management and monitoring systems. It recommended a robust system to track complaints, disciplinary proceedings and follow-up actions on a stage-wise basis to improve transparency, monitoring and timely resolution.
The government, however, said NFRA already maintains comprehensive, stage-wise data on pending complaints, disciplinary proceedings and follow-up actions.
Sector-specific audit studies
The committee further recommended that NFRA undertake sectoral studies to identify industry-specific accounting and audit challenges. It specifically referred to sectors such as oil, energy and insurance, where accounting practices and risk profiles may differ significantly.
The panel also recommended that NFRA develop sector-specific accounting guidance where necessary, with the objective of improving transparency, investor confidence and the effectiveness of audit regulation.
The government said NFRA’s periodic audit quality inspections already cover companies across sectors. During these inspections, audit firms are evaluated for adherence to quality control standards, while individual audit assignments are selected on a sample basis to assess audit quality. The samples include sectors such as real estate, pharmaceuticals, manufacturing, travel and power.
However, the government acknowledged that sectoral studies are yet to be undertaken and said the committee’s recommendation had been noted for further necessary action.
The committee’s recommendations come as NFRA’s disciplinary powers and institutional processes remain before the Supreme Court, while proposed amendments under the Corporate Laws (Amendment) Bill, 2026 could provide the statutory framework for addressing the concerns raised by the Delhi High Court.
[ET CFO]
