NFRA to release 7 papers to help stakeholders ask key audit questions

To enhance the quality and the level of interactions between auditors and companies' audit committees, NFRA chief Ajay Bhushan Prasad Pandey has said the watchdog plans to come out with six to seven papers having sets of questions that will cover various aspects of statutory audits.

"The papers will also help the stakeholders in asking the right questions related to audits," he told PTI.

Constituted in October 2018, the National Financial Reporting Authority (NFRA) has been making efforts to improve audit quality and has passed over 80 orders against various entities for auditing lapses.

"These papers will also act as a guidance for companies' audit committees, independent directors, and board of directors in understanding the nuances as well as critical aspects of auditing," the NFRA Chairperson said.

In the planned series, the first paper on 'Audit of Accounting Estimates and Judgments Part 1: Expected Credit Losses (ECL) under Ind AS 109' was issued on January 10.

"NFRA plans to come out with six to seven papers containing sets of questions that will cover various aspects of statutory audits in order to enhance the quality and level of interactions between auditors and audit committees/ board directors of companies," Pandey said.

In many cases, the regulator has noticed that the audit committees did not engage with auditors and did not ask the right questions to the auditors.

Some of the auditors also did not present many of the issues to the committees concerned. Such communication failures also led to many red flags of possible corporate failures going unnoticed.

Auditing standards require auditors to have two-way communication with the members of the TCWG (Those Charged With Governance).

"In NFRA's experience of enforcement, review and monitoring activities, it has been noticed that there are audit quality issues which could have been addressed at the right time provided the auditors had paid due emphasis to these areas and audit committees and concerned had asked the right questions," Pandey said.

According to him, the overall efforts are to further improve the quality of audits which is also a key for ensuring high corporate governance standards.