The Standing Committee on Finance, chaired by BJP MP Bhartruhari Mahtab, has sought detailed written responses from the Ministry of Corporate Affairs (MCA) regarding the functioning of the National Financial Reporting Authority (NFRA), India's sole independent audit regulator. The committee's scrutiny, part of discussions on the Demands for Grants for 2025-26, aims to assess NFRA's budgetary allocations, impact on audit quality, and overall regulatory effectiveness.
Examining Budgetary Allocations & Expenditure Trends
The House Panel has raised concerns over budget fluctuations in NFRA's funding over recent years. In FY 2023-24, NFRA's budget was initially pegged at ₹43.20 crore, later revised downward to ₹38.50 crore. The committee has sought clarifications from MCA on the reasons behind the reduction and the actual expenditure incurred during the period.
Looking ahead, the budget estimate for 2025-26 has been increased to ₹47.00 crore, up from ₹44.00 crore in 2024-25. The Parliamentary Panel is keen to understand the justification for this proposed hike and how the additional funds will be allocated to enhance NFRA's regulatory role.
Assessing NFRA's Role in Strengthening Audit Quality
Since its establishment in October 2018, NFRA has played a key role in monitoring and enforcing auditing standards. The Standing Committee has sought comprehensive data on:\
- Orders issued against firms for audit lapses
- Impact of NFRA's interventions on audit quality
- Measurable improvements in financial reporting
The Panel has also inquired whether NFRA has identified sector-specific challenges in auditing and common deficiencies across industries. The goal is to evaluate the effectiveness of NFRA's oversight mechanisms and determine if regulatory measures need further strengthening.
Compliance, Enforcement & Future Strategies
Ensuring strict compliance with auditing standards is a key focus area. The committee has sought details on:
- Mechanisms NFRA employs to monitor compliance
- Steps taken to ensure corrective measures post-intervention
- Planned enforcement strategies to tackle recurring audit quality issues
Recent NFRA initiatives, such as proposed annual transparency reports for audit firms, have also come under scrutiny. The committee has requested an update on the status of this proposal and any actions initiated against firms failing to comply with auditing standards.
NFRA vs ICAI: Evaluating Independence & Regulatory Scope
The Standing Committee is also examining NFRA's independence in making recommendations to the government, following observations from the Solicitor General. A comparative analysis between NFRA and the Institute of Chartered Accountants of India (ICAI) has been sought to assess:
- Structural differences in their regulatory approaches
- Impact of funding sources on rule-making
- Overlapping responsibilities in setting auditing standards
What Lies Ahead?
With the MCA set to respond, the Parliamentary Panel's findings will be crucial in shaping NFRA's future regulatory direction. The focus remains on enhancing financial transparency, strengthening audit compliance, and ensuring NFRA's effectiveness as India's independent audit watchdog.
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