NFRA issues stringent rules for Big Four firms; auditors to get 90 days to fix gaps
May 1, 2026
The National Financial Reporting Authority (NFRA) has issued stringent new norms requiring audit firms to submit remediation plans within 90 days and fix audit quality lapses within 180 days.
The National Financial Reporting Authority (NFRA) has come out with “stringent” norms that’s going to force top firms to fix gaps in their audit practice within a specified period. According to the new norms issued by the NFRA, audit firms are mandated to submit a plan within 90 days to fix lapses as flagged by the regulator in its annual inspection reports on these firms. This is a major shift in NFRA’s stance which, until recently, was asking the firms to take corrective steps basis its inspection reports but never called for a “remediation plan”.
The regulator has also asked the firms to comply with all the findings contained in the detailed inspection report within the timelines prescribed in the report or below 180 days from the issuance of the report.
Comparing Global Standards
A partner at Big Four firm told FE that these guidelines are far more stringent than the global norms. “NFRA’s counterpart in the US – PCAOB – gives a full one year to take corrective measures. While there’s no harm in being stringent, but these are initial years of inspection, and NFRA must provide flexibility to the firms while facilitating compliance. Once the ecosystem matures, strict guidelines can be introduced,” she said.
“Because the inspection reports have been largely dealt with adequate seriousness by the large audit firms, I don’t merit in putting strict timelines for taking remedial actions. The 180-day deadline is limited to demonstrate effective implementation of a plan,” said senior partner at another Big Four firm.
Further, the NFRA has said that it will follow-up on its inspection findings from the next cycle, and in specific cases, the regulator can do follow-ups before the next inspection cycle as may be warranted by the nature of the observations and findings, including the public or investor interest involved.
Accelerated Timelines
The regulator has also shortened the deadline for the audit firms to respond to the draft inspection report from 30 days to 10 days. “Given that the draft inspection report is issued after discussions, confirmations, issue of inspection observations, sufficient opportunity for the auditor to respond, and examination and analysis of replies and submissions, the inspected auditor, in the interest of timely finalisation of the inspection report, will be required to provide their response to the draft inspection report, within 10 days of its issue,” the note stated.
Additionally, all auditors have been asked to present the inspection report to the audit committees of the public interest entities audited by them.
Experts said that NFRA is trying to turn audit inspections into a transparent, time-bound enforcement mechanism, and materially raising accountability for auditors. “These changes shift inspections from a diagnostic exercise to a time-bound accountability framework, increasing regulatory, reputational, and governance pressure on audit firms. Firms will need stronger internal controls, faster response systems, and defensible remediation strategies, while boards and investors gain greater visibility into audit quality and compliance gaps,” said Kalpit Khandelwal, partner at Aekom Legal.
Though NFRA has clarified that the violations detected during the inspection process are not a result of an adjudicative process, and will not constitute conclusive findings for the purpose of imposing sanctions.
Beginning 2023, NFRA has been conducting annual inspections on top audit firms every year. The regulator issued inspection reports on firms affiliated to EY, KMPG, PwC and Deloitte in March this year. These reports have raised quality concerns around auditors’ independence, treatment of related party transactions, audit evidences, and firm-wide quality control systems.
[The Financial Express]
