Big Five auditors object to NFRA’s functioning
March 23, 2025
Allege regulator lacks neutrality; NFRA says law doesn't delineate separation of probe and disciplinary powers.
Ahead of the next month’s Supreme Court hearing on the National Financial Reporting Authority’s (NFRA’s) appeal challenging the Delhi High Court’s order that quashed 11 show-cause notices issued by the audit regulator, top audit firms have raised concerns about the functioning of NFRA.
Sources from Big Five firms have told FE that the NFRA’s current functioning is in “violation of the Companies Act 2013.” “Regulators like NFRA have to maintain a fine balance, and ensure that if it’s holding auditors accountable for lapses, its orders should also be viewed as unbiased and in compliance with the laws,” said auditor at a Big Four firm, on condition of anonymity.
Auditors argue that the section 132 of the Companies Act and NFRA Rules 2018 allude to division of authority in carrying out investigation and disciplinary proceedings. However, NFRA’s executive body is handling both these functions, which is bereft of neutrality and dispassionate appraisal. This, the sources say, was also raised by Delhi HC in its order last month.
Vishesh C. Chandiok, CEO at Grant Thornton Bharat said that just like audit firms, regulators are also subject to legal scrutiny. “India has to evolve where there is real freedom to challenge action of regulator or a government department through the judiciary in a fair, transparent and agile manner without fear,” he said.
Meanwhile, NFRA contend that the law doesn’t call for a “strict separation of powers or bifurcation of functions relating to investigation, inquiry and conduct of disciplinary proceedings.”
The audit firms argue that the strict regulatory oversight coupled with lack of neutrality at NFRA are making it difficult for them to attract and retain the best talent as chartered accountants are increasingly opting for other “non-risky” areas over auditing work.
“NFRA has to ensure that its own actions aren’t leading to a situation where the best talent is being discouraged away from the profession,” said the auditor quoted above.
“A good regulator can actually make the profession even more attractive because people will say now somebody cares about the quality of work I do,” said Chandiok.
[The Financial Express]
