Small auditors under NFRA lens
Hyderabad, Sep 2, 2025
The national audit regulator will launch a drive to enhance compliance by the country’s small and mid-sized audit firms after many of them failed to file their annual returns.
The National Financial Reporting Authority (NFRA) will hold meetings with small and medium audit firms over the next few months, NFRA chair Nitin Gupta told Mint.
“We are initiating an outreach programme very shortly in different cities with a focus on the audit profession. It will include smaller and medium-sized audit firms. The message from NFRA is that auditors should follow mandate of the law, not just in form but in spirit also,” he said. Public money should be managed responsibly, added Gupta, who earlier chaired the Central Board of Direct Taxes. He said auditors in seven-eight major cities will be covered in the outreach.
A large number of auditors of listed firms have defaulted on filing their annual returns. Over780 audit firms had not filed it for FY24 as of March.
Audit firms have to report details of their partners, audit engagements, network affiliations, regulatory proceedings, quality control and professional independence-related details. Defaulting on these requirements comes in the way of effective audit oversight.
In the case of large audit firms, the NFRA is already holding inspections, audit quality reviewsand financial reporting quality reviews to highlight areas of improvement. The drive to reachout to small and medium firms shows broadening of the watchdog’s efforts to improve the quality of audits and financial statements.
The NFRA has emphasised specific aspects of financial reporting on which the auditors needto take a hard look at. This includes loans to associate firms within a group because thesecould mask efforts at siphoning of public funds.
Experts said if smaller firms that audit listed firms are not complying with statutory normslike annual returns, it is a serious lapse, and they should review their processes.
The NFRA covers auditors of almost 5,400 listed firms, over 80 banking, close to 20 insurersand large unlisted public limited companies. These are audited by about 3,000 firms.
[Mint]
