NFRA tightens audit oversight with new rules on inspections, remediation

New inspection guidelines require audit firms to submit remediation plans within three months and implement corrective measures within six months

Top six audit firms in the country will face quality inspections by the National Financial Reporting Authority (NFRA) in 2026-27 (FY27) under a new set of guidelines. The rules will also require them to submit remediation plans for deficiencies detected within three months, and fully implement the plan within six months, according to two persons with knowledge of the development. 

Apart from Deloitte Haskins & Sells and affiliates, SRBC & Co LLP, Price Waterhouse & Affiliates’ (PW&A) Network, BSR Affiliates Network, MSKA & Associates LLP and Walker Chandiok & Co LLP, four other smaller auditors will face quality inspections in FY27. The top six auditors faced inspections in FY26 as well. 

NFRA’s new guidelines also encourage audit firms to share the regulator’s inspection reports, containing a critique of the way the auditor functions, with the audit committees of client companies. 

“This will give those companies a chance to assess the auditor’s functioning and also decide whether a reappointment will be fit or not,” said one of the two persons quoted above. 

NFRA, in its inspection reports, flags areas of deficiency in auditor independence, documentation requirements and the extent of compliance with quality standards. It conveys the regulator’s expectations to the audit industry and encourages compliance, but does not entail disciplinary action on the inspected firm or its partners. 

 

The report throws light on systemic deficiencies, weak industry practices and fosters accountability. 

Inspections focus on specific areas of audit that could have a material impact on financial statements. In FY26, inspections were focused on revenue recognition and loans and advances in addition to company specific matters. Enhancing credibility of financial statements is a priority for the government as the economy’s appeal to investors depends on it. 

Vishal Divadkar, Managing Partner & Head – Audit & Assurance, MSKA & Associates, a member firm of audit firm BDO Global told Business Standard the firm has finalised its remediation plan as per the inspection guidelines of April 2026. “The plan has been duly prepared and will be submitted within the stipulated timelines. We remain fully committed to continually investing in strengthening our quality control framework,” Divadkar said in a written reply to queries from Business Standard. 

On whether the firm has complied with NFRA’s suggestions for modifications in previous inspection findings, Divadkar said, “We have already remediated observations made in our earlier reports in respect of strengthening of formal documentation over governance and leadership structure, independence and client acceptance policies and audit documentation for select areas.” 

“We have also taken note of NFRA's observations from the recently concluded inspection and are actively addressing the suggested modifications. Our teams are already implementing the necessary improvements, and we remain firmly committed to upholding the highest standards of audit quality,” he added. 

A spokesperson for Walker Chandiok & Co LLP said the firm acknowledges the NFRA Inspection Report 2024 (released on March 27, 2026) and reaffirms its commitment to audit quality, independence, and public interest. 

“The firm has consistently maintained strong policies and remains fully compliant with applicable standards. No audit opinions issued by the firm have been questioned, and we remain dedicated to continuous improvement and constructive engagement with regulators to strengthen confidence in India’s audit ecosystem.” 

“The firm has prepared a comprehensive remediation plan addressing all inspection observations and implemented in line with the timelines prescribed by NFRA. We remain engaged with our clients, including their audit committees, on matters arising from the inspection process,” said the Walker Chandiok & Co LLP spokesperson. 

Divadkar said his firm was forthcoming in sharing the previous inspection reports to the audit committees of their client companies. “The findings of the inspection reports have been shared with the audit committees as appropriate. We have ensured that they were made available wherever sought, and we have responded positively to every such request. Transparency with our audit committees remains a priority for us.” 

Two senior audit industry executives, who did not wish to be named, said their firms will give remediation plans after FY27 inspections, if needed, describing the requirement as prospective. According to one of the two persons cited above, NFRA’s remediation guidance is in line with that of its global peers. However, the US Public Company Accounting Oversight Board (PCAOB) allows 12 months for remediation, compared with NFRA’s six-month timeline. 

NFRA has, in April this year, separated functions of oversight, investigation, referring cases for disciplinary action and adjudication on disciplinary matters into four divisions. Each division is led by a separate member with complete independence for each team, to avoid legal challenges to its disciplinary orders. 

Queries emailed to Deloitte Haskins & Sells, SRBC, PW & A, and BSR Affiliates Network, and to the NFRA seeking comments remained unanswered at the time of publishing. 

Previous NFRA audit observations covered issues around non-audit services in the case of Deloitte, independence requirements and definition of ‘connected persons’ in the case of Walker Chandiok, human resource policy and independence of some partners in the case of PW & A and monitoring of non-audit services in the case of SRBC.