“NFRA Chairman Pandey Prioritizes Audit Quality”

Ajay Bhushan Pandey, NFRA Chairman, Emphasizes Focus on Audit Quality

Ajay Bhushan Pandey, the chairman of the National Financial Reporting Authority (NFRA), recently discussed the upcoming annual inspections of major audit firms in a conversation with ET. Contrary to speculation, Pandey clarified that these inspections are not regulatory clampdowns. Instead, they aim to bolster compliance with auditing standards and safeguard the interests of investors and shareholders.

NFRA’s Mandate and Inspection Focus

Pandey underscored that these inspections align with NFRA’s mandate under section 132 of the Companies Act. Their primary goal is to monitor and enforce adherence to accounting and auditing standards. The inspections will scrutinize various aspects, including audit firm practices, adherence to auditing standards, auditor independence, and oversight over engagement teams conducting audits.

Protecting Investor Interests in a Digital Era

In light of the expanding digital public infrastructure, Pandey emphasized the necessity of protecting the interests of a broader spectrum of investors in the capital market. The inspections seek to bolster investor confidence by ensuring the quality of financial reporting.

Significance of Company Audit Committees

Pandey also highlighted the pivotal role of company audit committees, primarily composed of independent directors, in generating accurate financial statements. Effective communication between auditors and company governance structures is crucial to ensuring transparency and accuracy in financial reporting.

Engagement Strategies with Audit Committees

To address governance or audit quality issues effectively, Pandey disclosed plans to engage in dialogues with the audit committees of listed companies. Proactive communication is essential to prevent audit committee meetings from becoming mere formalities.

Jurisdiction and Future Endeavors

While NFRA’s jurisdiction predominantly covers auditors of listed and large unlisted public companies, Pandey clarified that the government holds the authority to refer cases involving private companies to NFRA if deemed in the public interest. Additionally, upcoming initiatives include conducting inspections aided by data analytics and AI, engaging with audit committees and independent directors, and organizing seminars and conferences to enhance audit quality.

Addressing Concerns on Non-Audit Services

Addressing concerns over audit firms providing non-audit services to their audit clients, Pandey emphasized the risk of compromising auditor independence. Clear understanding of regulations like section 144 of the Companies Act and the Code of Ethics is crucial to eliminate confusion about prohibitions on non-audit services.

Conclusion

In conclusion, Pandey’s remarks underscore NFRA’s steadfast commitment to enhancing audit quality and safeguarding investor interests. Transparency, effective communication, and adherence to regulatory standards remain paramount in this endeavor.