The National Financial Reporting Authority (NFRA) Chairperson, Ajay Bhushan Prasad Pandey, emphasized the urgent need for India to align its auditing standards with global benchmarks to bolster investor confidence, attract funds, and enhance the credibility of financial data. Pandey underlined that achieving a "Viksit Bharat" (developed India) demands world-class auditing standards, stating, "We cannot have inferior standards."
Established in October 2018 under the Companies Act, NFRA has issued over 80 regulatory orders to date. In a recent interview with PTI, Pandey pointed out gaps in India’s existing auditing standards and highlighted the necessity of updates to address loopholes that have historically led to financial frauds worldwide.
Key Areas for Improvement
Pandey revealed that certain auditing standards in India, such as SA 600 (group company audits) and SA 299 (joint auditor liability), significantly deviate from international norms. These standards were reviewed extensively in collaboration with stakeholders, including the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), and Comptroller and Auditor General (CAG).
"Over the last two decades, many global standards have been updated, but India is yet to implement them in various areas," Pandey noted. The NFRA board, with backing from regulatory bodies, has approved changes aimed at bridging these gaps, ensuring India's financial framework meets global expectations.
Benefits of Global Alignment
Pandey stressed that aligning with international standards will not only improve the reliability of financial reporting but also make India an attractive destination for foreign investments. He said, "When you align with global standards, there will be more investors' confidence and greater credibility to the financial data."
Five-Pronged Approach to Reform
To strengthen India’s auditing ecosystem, NFRA is adopting a five-pronged strategy:
- Building an ecosystem for auditors and stakeholders through capacity development.
- Issuing disciplinary orders to maintain accountability.
- Conducting inspections of audit firms to ensure compliance.
- Aligning auditing and accounting standards with international norms to address existing gaps.
- Leveraging technology to enhance regulatory efficiency and building internal capabilities.
Addressing ICAI’s Concerns
The Institute of Chartered Accountants of India (ICAI), the apex body for CAs, has raised concerns over some proposed changes. However, Pandey assured that NFRA's decisions were made after detailed consultations with regulatory bodies and aimed at aligning India’s practices with global standards.
Regulatory Powers and Oversight
Pandey clarified that NFRA currently has adequate powers to fulfill its mandate under the Companies Act and does not require additional regulatory authority. He noted that avoiding regulatory overburden is crucial to maintaining balance and efficiency in governance.
As India aspires to become a global economic powerhouse, NFRA's efforts to modernize its auditing framework could play a pivotal role in boosting investor confidence and ensuring financial transparency.
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