The National Financial Reporting Authority (NFRA) in India plans to conduct its first annual inspection of key audit firms, including the Big Five, by April. The inspection will primarily focus on evaluating the processes and standards adopted by these firms. Additionally, NFRA will assess the compliance of the Big Five with the suggestions provided in the regulator’s previous reports. In December 2023, NFRA had identified certain deficiencies in their work processes and has now decided to review their progress in addressing those concerns. This move is significant as it marks the beginning of a more proactive approach by NFRA towards ensuring the quality and reliability of financial audits conducted by these key firms.
NFRA, which was established in 2018 under the Companies Act, serves as an independent regulator for auditing firms in India. It is responsible for promoting transparency and accountability in the financial reporting ecosystem by upholding stringent standards of audit quality. The inspection of key audit firms is a crucial part of NFRA’s role, as it helps identify areas for improvement and ensures that these firms adhere to the highest standards of professional conduct and ethics.
According to the people familiar with NFRA’s plans, the inspection will not only evaluate the processes and standards adopted by the audit firms but will also assess the effectiveness of their internal control systems. This holistic evaluation aims to identify any gaps in the firms’ operations and to provide recommendations for improvement. By assessing the compliance of the Big Five with the suggestions made in the December 2023 reports, NFRA aims to track their progress in addressing the deficiencies previously identified.
The Big Five audit firms, including Deloitte, PwC, EY, KPMG, and Grant Thornton, are among the most prominent players in the auditing industry. Their audits of large public companies and multinational organizations are critical for ensuring transparency and trust in financial reporting. Therefore, it is essential for these firms to maintain the highest standards of quality and integrity.
This move by NFRA to conduct annual inspections reflects its commitment to enhancing the quality and credibility of audits conducted by the Big Five and other key audit firms. By scrutinizing their processes, standards, and compliance with recommendations, NFRA aims to strengthen the overall effectiveness of the auditing profession in India.
The upcoming annual inspections, set to commence by April, will be a significant milestone for NFRA and the audit firms under review. It will serve as a mechanism for ongoing improvement and a means to ensure that audit firms are meeting the expectations of various stakeholders, including investors, regulators, and the general public. By identifying and addressing any deficiencies proactively, NFRA aims to reinforce the trust and confidence in the financial reporting ecosystem, ultimately contributing to the overall growth and stability of the Indian economy.
