Auditing of Companies Shows Significant Improvement: NFRA Chief
The National Financial Reporting Authority (NFRA) Chairperson, Ajay Bhushan Prasad Pandey, has stated that auditing standards in India have seen notable progress over the past 3-4 years. This improvement is attributed to increased accountability and the enforcement of stringent regulations under the Companies Act, 2013, and SEBI’s Listing Obligations and Disclosure Requirements.
Key Highlights
- Improvement in Auditing Practices:
Enhanced focus on corporate governance and compliance.
Better adherence to auditing standards and improved engagement by auditors.
- Challenges in Auditing:
Lack of communication between auditors and Those Charged With Governance (TCWG), including board members and audit committees.
Auditors and TCWG often fail to address critical issues or raise red flags, leading to corporate failures.
- NFRA’s Actions and Observations:
Over 80 orders issued in cases involving prominent failures such as DHFL, Cafe Coffee Day, and Reliance Capital.
Failures often stemmed from poor auditor performance and lack of proactive governance by audit committees.
- Capacity Building for Auditors and Boards:
NFRA, in collaboration with the Indian Institute of Corporate Affairs (IICA), has initiated a four-month course for audit committee members.
Plans to launch additional courses to enhance auditors’ capabilities for auditing large listed companies.
- The Need for Two-Way Communication:
Emphasis on dialogue between auditors and TCWG to identify potential risks and take corrective actions proactively.
Lessons from Corporate Failures
The NFRA Chairperson cited cases like DHFL and Cafe Coffee Day as textbook examples of corporate collapse due to auditor oversight. He stressed that earlier detection of discrepancies could have mitigated massive losses suffered by banks and shareholders.
Future Outlook
Pandey emphasized that fostering a culture of accountability, collaboration, and ongoing education for auditors and governance members is crucial for preventing future corporate failures and ensuring a robust financial ecosystem.
