National Financial Reporting Authority
NFRA introduces audit quality inspections
Posted On: 11 NOV 2022 6:29PM by PIB Delhi
The National Financial Reporting Authority (NFRA) has taken another step towards fulfilling its statutory mandate to improve the quality of audit profession and has published its audit quality inspection guidelines. Audit quality inspections, world-wide, are integral to the functioning of independent audit regulators. For instance, the core principles of independent audit regulators by the International Forum for Independent Audit regulators (IFIAR), which comprises independent audit regulators from 54 countries/jurisdictions, requires that audit regulators, should as a minimum, conduct recurring inspections of audit firms undertaking audits of public interest entities in order to assess compliance with applicable professional standards, independence requirements and other rules, laws and regulations.
NFRA has stated in its guidelines that inspections are intended to identify areas and opportunities for improvement in the audit firm’s system of quality control. Inspections will consist of firm-wide review of audit quality (SQC 1) and individual file reviews on test-check basis to evaluate the level of compliance with applicable auditing standards and quality control policy and processes. NFRA has clarified that inspections by nature, are distinct from investigations undertaken under section 132 (4) of the Companies Act 2013. However, in certain cases, test-check by the inspection teams may provide basis for or require reference of such cases/matters for enforcement or investigation under applicable provisions of the Act and Rules.
Audit quality inspections will provide an opportunity for feedback and course correction to the audit firms and at the same time foster a greater mutual understanding of the policies and procedures that underlie audit quality management. The inspections are intended to bring about systemic improvements in overall financial reporting framework in the country.
As part of the feedback obtained by NFRA on its consultation paper (2021) on ‘Enhancing Engagement with Stakeholders’, many stakeholders had also suggested inclusion of onsite inspection of audit firms by NFRA to help inspection teams familiarize themselves with the systems and processes followed by audit firms and to enable the audit firms to comply with and conform to applicable auditing standards, guidance etc in the execution of its audits.The inspection guidelines are available at https://nfra.gov.in/sites/default/files/Inspection%20guidelines%
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