NEW DELHI: Even as tensions between the National Financial Reporting Authority (NFRA) and the Institute of Chartered Accountants of India (ICAI) persist, NFRA Chairperson Ajay Bhushan Prasad Pandey has acknowledged significant improvements in the auditing of companies over the last three to four years.
In an interview with a leading news agency, Pandey emphasised that many auditors are performing commendably, upholding their professional responsibilities despite the obvious challenges in the profession. “Overall, auditing of companies has improved over the last 3-4 years,” he noted, attributing this progress to heightened scrutiny and evolving standards.
The NFRA, established in October 2018 under the Companies Act, has been instrumental in identifying lapses that contributed to major corporate failures, including high-profile cases like Café Coffee Day and DHFL. The regulator has issued over 80 orders against auditors for failing to raise red flags, underscoring the need for accountability in the profession.
Red-flagging is key
Pandey highlighted that lapses are not limited to auditors alone but often extend to board members and audit committees, who sometimes fail to engage adequately with auditors or ask critical questions.
“In many cases, it was a failure of communication between the two. That is why many red flags could not be raised,” he explained.
To prevent such failures, Pandey emphasised the importance of sensitising both auditors and Those Charged With Governance (TCWG) about their roles.
Training programme
The NFRA, in collaboration with the Indian Institute of Corporate Affairs (IICA), has initiated training programs, including a four-month course for audit committee members, to enhance their understanding of audit processes and responsibilities.
Despite NFRA’s regulatory actions and push for accountability, its relationship with the ICAI has been strained, with differing views on the regulator’s approach and scope. However, Pandey reiterated the need for collective efforts to strengthen the auditing ecosystem and prevent corporate failures.
Citing cases like DHFL, Reliance Capital, and Café Coffee Day, he pointed out how auditors’ consistent failure to raise red flags resulted in significant losses for banks and shareholders. “If they had raised the red flag earlier, huge losses could have been avoided,” he said.
While challenges remain, Pandey stressed the need to build on recent progress and foster collaboration between all stakeholders to ensure a robust and transparent auditing framework.
