Auditors questioning companies is a good sign: NFRA Chief
Nov 6, 2023
Ajay Bhushan Pandey hopes auditors speaking up will eventually over a period of time result in an overall improvement in audit quality and more trust in financial reports of the public interest entities.
Auditors increasingly questioning the firms today is a good sign for the audit markets, said India’s accounting watchdog chief adding it is making the stakeholders more careful.
“Auditors speaking up is a good sign. We have not seen many cases earlier where they had spoken up as much as they are now. While it may be too early to say if this is a trend this does signal to an extent that the audit markets are headed in the right direction,” National Financial Reporting Authority (NFRA) chairperson Ajay Bhushan Pandey told ETCFO in an exclusive interview.
The NFRA chief hopes auditors speaking up will eventually over a period of time result in an overall improvement in audit quality and more trust in financial reports of the public interest entities.
The NFRA’s chair comments came in the backdrop of more and more auditors in recent times coming out and challenging the company’s management amid the increased regulatory spotlight on the profession.
Some auditors have also ended up resigning from the companies for instance in the case of Byju’s, which was once the most valued Indian ed-tech firm, where its auditors Deloitte Haskins and Sells resigned in June citing long-pending delay in its FY22 financial results.
Likewise, in the case of billionaire Gautam Adani's flagship company Adani Ports, again its auditors, Deloitte Haskins and Sells LLP, resigned in August, giving a qualified opinion on the company’s FY23 accounts amid fraud and stock market manipulation concerns raised by the US-based short-seller Hindenburg.
Regarding resignations by auditors, and without commenting specifically, the NFRA chief noted that they may be resigning due to multiple reasons including non-availability of required documents from the management.
He said while the auditors are entitled to resign under the Companies Act, 2013 if they state their reasons behind the move, he stressed that they must report fraud if any that comes to their notice.
“There is a certain responsibility which is attached to them being auditors of public interest companies. They are bound to report fraud,” Pandey highlighted.
In June, the NFRA issued a circular on auditors’ duty to report fraud. It directed auditors to report every single scam above Rs 1 crore to the government even in cases where they are not the first ones to identify them. The circular came against the backdrop of rising corporate failures and accounting scandals. In its circular, the NFRA also made it explicitly clear that the resignation does not absolve the auditor of his responsibility to report fraud.
NFRA is India’s independent audit regulator. It was constituted in October 2018 in the wake of Rs 1-lakh fraud erupting at the country’s public construction financier IL&FS, with an idea to improve corporate financial reporting. NFRA has the mandate to regulate auditors of around 7,000 public interest entities. Previously, the education body Institute of Chartered Accountants of India (ICAI), doubled up as the accounting regulator.