BS Manthan: NFRA chairperson stresses need to align with global audit norms

For businesses to grow and companies to compete, we need to ensure we do not increase compliance burden, says Ajay Bhushan Pandey, chairperson of the National Financial Reporting Authority

"We can become the auditing powerhouse of the world," believes Ajay Bhushan Pandey, chairperson of the National Financial Reporting Authority (NFRA), while discussing new paradigms in financial reporting and auditing in India at the Business Standard’s annual BS Manthan conclave on February 27 in New Delhi. 

In a conversation with Business Standard’s Ruchika Chitravanshi, Pandey spoke about the role of NFRA, India's auditing and accounting supervision authority established in 2018. He emphasised the importance of auditing and the need for oversight of auditors in India’s aspirations of becoming a 'Viksit Bharat'. He said, "In the past two years, the quality of audits has improved, and for that, I must appreciate the auditing firms. This is an encouraging sign. If you compare audits now to those conducted a few years ago, the standards have improved significantly. I must commend the auditing firms — we are seeing vast improvement."

Pandey asserted that with the highest number of chartered accountants globally, India has the potential to become the world's leading auditing hub. He emphasised the importance of adhering to global accounting standards, stating, "The world's accounting can happen in India, but how can we achieve this if we do not align with global standards? It is necessary to integrate ourselves with international norms." 

 

Markets regulator Sebi (Securities and Exchange Board of India) has also begun mandating companies to comply with these standards, he said.

 

‘Trust of investor is crucial for India’s growth’ 

He further said, "We live in a connected world. We aspire to become a developed economy, and for that, our gross domestic product (GDP) needs to grow at 9 per cent. Attracting investment is crucial for this. Therefore, we need trust in financial reporting. The world should have confidence in our growth figures. Investors sitting in New York and London must be able to trust India’s economic data."

 

'We must adopt a non-adversarial disciplinary system’ 

Pandey highlighted that conducting inspections at one firm creates a ripple effect, leading to improvements in the financial reporting of several other firms, which in turn enhances investor trust. However, he cautioned against regulatory overreach. He said, "Overreach and excessive regulation have been highlighted across all sectors, and the government has been actively discussing ways to reduce them. For businesses to grow and companies to compete, we need to ensure that compliance burdens are not unnecessarily increased." 

On the enforcement of the Foreign Corrupt Practices Act (FCPA), he reiterated that while it is essential for domestic regulatory standards to align with global norms, it is equally important to ensure that compliance obligations do not become burdensome for firms.

 

‘Technology advancement is key to improved auditing’ 

Pandey positioned technology as the cornerstone of future developments, particularly in auditing. He said, "In the case of income tax, nearly 70 million returns are filed, but only 200,000 are scrutinised. Technology could be the game-changer in auditing and accounting."