More disclosures will improve audit quality: MCA
2 min read 29 Mar 2023, 04:24 PM ISTRequirement of annual transparency report by audit firms will be implemented in a gradual manner for public interest entities starting with statutory auditors of top 1,000 listed companies by market capitalisation with effect from FY23 financial statements.
PremiumNew Delhi: Audit regulator National Financial Reporting Authority's (NFRA) plans to mandate greater disclosures by auditors in the form of annual transparency reporting will go a long way in addressing concerns around quality of audits, the ministry of corporate affairs said in its monthly update of the corporate sector.
The ministry said that requirement of annual transparency report (ATR) by audit firms will be implemented in a gradual manner for public interest entities starting with statutory auditors of top 1,000 listed companies by market capitalisation, effective FY23 financial statements. NFRA had earlier sought public comments on the contents to be included in the annual transparency report by 24 February.
The ministry also said that recommendations made by an expert committee to step-up operational autonomy of NFRA such as by having a dedicated NFRA fund is expected to address the concerns around audit and accounting quality. The ministry is currently working on a Bill to revamp the audit framework.
Through the annual transparency report, NFRA intends prescribing publication of certain critical information about the auditor's operational activities, management, governance and ownership structures, and policies and procedures necessary to deliver high-quality audits. The information contained in the ATR will be useful to the investors, audit committees, independent directors and public at large, the ministry said. The proposed ATR requirements are on the lines of the contemporary international best practices, the ministry said.
The ministry also said that as an independent audit regulator, NFRA is expected to enhance investors' confidence and bring transparency and accountability in the auditing profession and that the government is making a consistent effort in this direction.
The contents to be disclosed in the transparency report seek to throw light on the business model of audit firms, which has been a subject of debate and litigation after NFRA said in some of the audit quality review reports that some of the firms had breached the norms of auditor independence.
Auditors have to disclose in these reports their legal structure, ownership, management and governance structure, details of the network if the auditor is a member of any network in India or abroad, the structure of the network, whether the network is subject to oversight by any professional accountancy body or independent regulator and details of other members of the network.
Auditors also have to disclose the nature of activities and services rendered by the network. They also have to give information about the overall internal quality control system, acceptance and continuation of audit clients and their audit methodology.
