National Financial Reporting Authority was established under Section 132 of the Companies Act, 2013, NFRA is mandated to oversee and enforce compliance with accounting and auditing standards in India. The Authority has made significant strides in advancing this mandate and upholding the integrity of financial reporting.

A key area of focus has been the culmination of the current inspection cycle covering ten audit firms and forty-two audit engagements. The inspection reports issued during March 2026 encapsulate NFRA’s assessment of the design and operating effectiveness of firms’ quality control frameworks and audit engagement practices. The findings underscore the imperative of strengthening independence-related controls, reinforcing the robustness of risk assessment processes, enhancing the articulation and documentation of key judgments and ensuring the adequacy and appropriateness of audit evidence in significant areas. Concurrently, NFRA has sustained its outreach and capacity-building efforts through stakeholder workshops, webinars and the issuance of guidance documents, with a view to fostering consistency in the application of standards and augmenting audit quality on the emerging issues.

As the audit environment continues to evolve, maintaining high standards of audit quality, ethical conduct and regulatory compliance remains essential to protecting the public interest.

In this globalized integrated world of economies, in which India is assuming prominent role, India cannot be oblivious to the reforms and changes in the global financial reporting world.

Companies Act 2013 included specific provision for creation of an independent institution National Financial Reporting Authority. NFRA has a responsibility to protect the public interest and the interests of investors, creditors and others. In a way NFRA’s role is to drive ‘Systemic’ change in the entire financial reporting ecosystem in India.  

 

During last three years, NFRA has unleashed a slew of regulatory tools to support enhancement in the quality of financial reporting on the lines of global best practices. These tools are:

·       Webinars,

·       Auditor-Audit Committee advisories,

·       Auditor Workshops, and

·       Audit Practice Toolkits.

Some of these could be useful to global audience as our standards are converged with global standards.

 

Audit Workshops

NFRA embarked on a series of outreach programmes during the year as part of its “Creating a Better Financial Reporting Ecosystem” initiative, through workshops focused on supporting small and medium audit practitioners at Hyderabad, Indore, Bengaluru and Kolkata during FY 2025–26. Such nationwide audit workshops assume importance in bridging regulatory expectations with professional practice and play a crucial role in improving audit quality by enhancing both competence and confidence within the profession.

 

NFRA Circulars

NFRA continues to issue circulars on relevant matters with a view to strengthening audit quality and enhancing compliance within the financial reporting ecosystem. These circulars reiterate existing provisions of applicable standards and are addressed to auditors of Public Interest Entities (PIEs) within NFRA’s regulatory domain, as well as other stakeholders. All circulars are available on the NFRA website.

In this context, NFRA issued its fifth circular (NF-25013/3/2025–NFRA dated 07 January, 2026), aimed at strengthening communications between statutory auditors, Those Charged with Governance (TCWG), including Audit Committees, in accordance with the requirements of the Companies Act 2013, the Standards on Auditing prescribed under the Act and other relevant rules and regulations.

The circular reiterates that auditors must appropriately identify TCWG at the commencement of the audit and ensure continuous and meaningful communication throughout the audit process. Such communication should cover audit planning, significant risks, materiality considerations, key judgments, internal control deficiencies, fraud risks, going concern assessments and matters relating to auditor independence.

 

NFRA’s INSPECTION REPORTS

During the current inspection cycle, NFRA undertook firm-wide and engagement-level inspections covering ten audit firms, including large network firms. In addition to the review of firm-wide compliance with the Standards on Quality Control, forty-two audit engagements were selected as part of this year’s inspection scope. NFRA issued four inspection reports on 16 March, 2026, followed by the remaining six reports issued on 27 March, 2026. The reports set out NFRA’s assessment of the design and operating effectiveness of the firms’ quality control systems and the results of inspections of specific audit engagements. The inspections covered key areas including firm and engagement level independence requirements, risk assessment processes, engagement performance, monitoring activities and documentation practices. The inspection findings indicate the need for strengthening of independence-related controls both at firm and network level. Instances were noted where independence monitoring mechanisms were inadequate, documentation supporting independence confirmations was incomplete and required safeguards were not operating as intended. Independence continues to be an area requiring focused attention in firm-wide systems of quality control. Other observations arising from the inspections relate to deficiencies in the identification and assessment of risks of material misstatement, limited linkage between identified risks and audit procedures, inadequate documentation of key judgments and insufficient evidence to support conclusions in significant audit areas. Weaknesses were also observed in monitoring and remediation mechanisms at the firm level. In line with its mandate of promoting high-quality auditing and financial reporting, NFRA’s inspection cycles are intended to identify systemic and engagement-level deficiencies and facilitate timely remedial actions. The inspections seek to strengthen compliance with applicable standards, reinforce accountability within audit firms and promote consistency in audit practices. These efforts are expected to contribute to sustained improvements in audit quality and enhance the reliability and credibility of financial reporting in the public interest.

 

Audits exist for one fundamental reason to support trust. The trust of investors, lenders, and the public at large. When audit quality is high, confidence in financial reporting is strengthened. When audit quality falls short, the consequences are far reaching. Market instability, reputational damage and erosion of confidence not just in individual firms but in the profession as a whole.

As a regulator, our mandate is very clear to ensure that audits are conducted with professional skepticism, technical competence, independence and integrity.

Audit quality inspections are one of the primary tools we use to assess whether this mandate is being fulfilled.

Let me now tell you about the overall objectives of inspection which is to evaluate compliance of the audit firm or auditor with auditing standards and other regulatory and professional requirements and the sufficiency and effectiveness of the quality control system of the audit firm or the auditor including number one adequacy of governance framework and its functioning effectiveness A firm's internal control over audit quality and system of assessment and identification of audit risks and mitigating measures.

Now let me describe the framework and the methodology that we have adopted at NFRA. Firms are inspected periodically depending on various factors. From the inspections conducted so far by NFRA, 12 inspection reports are on the NFRA. Two reports of five firms namely Walker Chandiok and Company, Deloitte Haskins, SRBC and company, PWC, BSR and Co. and many other firms, MSK and Associates have been completed till now.

We are now into a third round of inspections where we are inspecting 10 firms Walker Chandiok and Company, Deloitte Haskins, SRBC, PWC, BSR and MSK, we have also added this year Uma Maheshwari Rai and company, Singhi and company BDO and company LLP and CNK and affiliates. We hope to complete these round of third round of inspections by this financial year.

Now let me tell you what are the focus areas of the inspections that NFRA conduct. You know in 2022 our inspections focused on the quality control systems of audit firms and for the individual engagement selected we concentrated on three key areas in 2022 that is revenue trade receivables and investments.

In 2023, while we continue to exam examine firms quality control processes, our file reviews shifted towards internal controls over financial reporting, specifically in relation to revenue related party transactions and impairment of assets. In the current inspection cycle, we are again assessing firms quality control. But in addition, we are focusing on revenue, loans and advances and one engagement specific high-risk area for each audit audit selected for review.

Now let me come to the utility of audit quality inspection reports for auditors. You know, audit quality inspections such as those by NFRA provide an independent external validation of the audit firm's performance, enabling you to strengthen your audit quality and address identified deficiencies. NFRA inspection reports offer valuable insights into compliance with independence norms, firmwide governance,

leadership and oversight on quality of individual engagements.

Progressive coverage of areas by NFRA if seen will enable a 360 degree view of audit firm governance. High-risk areas identified in inspections such as revenue recognition, related party transaction verification, internal control over financial reporting, testing, impairment, estimates and judgments which warrant priority attention in your audit procedures. Then you can do a comparative analysis. You can benchmark your audit firm's profile, the client size, industry, and complexity against inspected firms and map firmwide quality control deficiencies such as EQCR shortfalls or documentation breaches to audit execution, ensuring tailored remediation in your engagement procedures and remediation trends across inspection reports to identify persistent quality risks. requiring systemic improvements.

Now the international forum of independent audit regulators the IIA was established in 2006 in Paris. It has now 56 members with India's NFRA being admitted in the year 2023. IFIA's mission is to serve the public interest including investors by enhancing audit quality oversight globally. It has laid down 14 core principles for independent audit regulators. Four of these principles that relate to audit quality inspections are shown on the slide. The principle 8 deals with audit regulators should at a minimum conduct recurring inspections of audit firms undertaking audit of public interest entities. Principle 9 talks about audit regulators should ensure that a risk-based inspections program is in place. Principle 10 talks about audit regulators should ensure that inspection should include effective procedures for both firmwide and audit engagement file reviews. The principle 11 talks about audit regulators having a mechanism for reporting inspection findings to the audit firm and addressing remediation of findings with the audit firm. We as a member of IFIA keep these guiding principles in mind in focus while planning and executing audit quality inspections. Now let me in brief give you a few takeaways for empowering auditors.

Let me briefly mention some of these potential takeaways. Number one, independence of auditors.

1.    You can evaluate the non- audit services provided by your firm and your network to ensure compliance with independence requirements and address any potential threats to audit independence.

2.    Related party transactions strengthen the audit procedures for identification of related parties and transactions with them. Ensuring robust procedures are in place and adequately documented regarding impairment of assets. Enhance audit procedures for identification of impairment indicators and ensure that processes followed for measurement and recognition of impairment are sound and well evidenced.

3.    Regarding integrity of audit documentation to ensure audit documentation is adequately evidenced and demonstrates how you challenge assumptions, reason through key areas and draw appropriate conclusions.

4.    Loans and advances. Establish robust procedures to verify that proceeds of loans and advances are utilized for their intended purposes with appropriate controls and documentation.

5.    Then maintenance of confidentiality. Implement measures to safeguard the confidentiality of sensitive information assessed during the audit both during and after the engagement.

6.    Professional skepticism. Document the extent of reliance on management explanations and key assumptions. Ensure that you have raised sufficient questions and documented your evaluation prop pro process to support your conclusions.

7.    Implement robust audit procedures to ensure revenue is current correctly recognized in accordance with applicable accounting standards with documented evidence of your verification procedures.

 

You know India's capital markets have grown rapidly in scale, complexity and global integration. Indian companies do not raise capital not only domestically but also from foreign investors who rely on the credibility of the audited financial statements. Hence maintaining audit quality is foundational in retaining investor confidence, market integrity, financial stability and ensuring India's reputation as a trusted investment destination. Audit firms are central to this ecosystem and their effectiveness directly influences audit quality outcomes. Audit firms that actively engage with inspection teams and embrace regulatory guidance are better positioned to strengthen audit quality, enhance financial reporting integrity and reinforce stakeholders confidence.

There are two ends one is the accounts preparer and the user of the accounts they have a very important role to play and when user is looking at the thing in what way he is able to uh feel confident in what way he is feeling that is the accounts are true and fair and in what way they contain disclosures which are relevant for the purposes of the user be it the lender be it the uh shareholder be it the investor or the even a partner in the value chain. So that sort of development of that trust is most important and if we want to build the culture of equity in India probably worth which is which shall be globally comparable high quality financial reporting framework. Both are very significant. We have to ensure that we progress effectively in these areas. And in this perspective, chartered accountants who are engaged in audit practice are the guardians of public interest and therefore assume the sheet anchor's role in that critical component of enhancing trust and ensuring integrity of the financial reporting framework.

I'm not going to the five lines of defense but external auditors are those who generate that trust and enable and maintain the high quality financial reporting. Like Audit quality is therefore very important and We have to maintain that audit quality improve the audit quality so that we are able to generate that trust which is very much needed.

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