NFRA to conduct audit quality inspections to improve overall financial reporting framework

In a significant move, the National Financial Reporting Authority (NFRA) will conduct audit quality inspections aimed at systemic improvements in the overall financial reporting framework in the country.

The watchdog said it has published the audit quality inspection guidelines and they are on the lines of the best practices followed by international audit regulators.

The inspections are intended to identify areas and opportunities for improvement in an audit firm's system of quality control.

There have been instances of financial misdoings where the role of auditors and audit firms had also come under the scanner.

''Inspections will consist of firm-wide review of audit quality... and individual file reviews on test-check basis to evaluate the level of compliance with applicable auditing standards and quality control policy and processes,'' it said in a release on Friday.

NFRA also clarified that inspections by nature are distinct from investigations.

''However, in certain cases, test-check by the inspection teams may provide basis for enforcement or investigation under applicable provisions of the Act and Rules,'' it added.

According to the regulator, 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,'' it said.

Further, NFRA said that many stakeholders had suggested onsite inspection of audit firms by the regulator to help inspection teams familiarise themselves with the systems and processes followed by audit firms.

The suggestions had come in response to its consultation paper on 'Enhancing Engagement with Stakeholders' in 2021.