NFRA to introduce Annual Transparency Report by the Audit Firms

The National Financial Reporting Authority (NFRA) has published draft requirements regarding the preparation and publication of the Annual Transparency Report (ATR) by auditors/audit firms as a step toward improving the transparency about management and governance of audit firms and their internal policy framework to ensure high quality audits and prevent conflict of interest by maintaining independence.

These ATR requirements are in line with the current global best practises put in place by a number of well-known independent audit regulators in other countries. The NFRA is given the authority to require an auditor to report on its governance procedures and internal controls intended to enhance audit quality, safeguard its reputation, and lower risks, including the risk of the auditor failing, under Rule 8(2) of the NFRA Rules 2018 and to take any necessary action in response to the report.

India has developed into a global centre of excellence in the provision of financial reporting and audit services to a significant number of multinational corporations, raising expectations for sound and high-quality codes and practises comparable to global benchmarks. Indian companies have become significant contributors to the global economy. In accordance with Rule 8(2) of the NFRA Rule 2018, the NFRA intends to mandate the publication of an Annual Transparency Report that will contain important details about the operations, management, ownership, and governance structures, as well as the policies and procedures required to conduct high-quality audits, etc., of the auditor.

The ATR’s information will be helpful to investors, audit committees, independent directors, and the general public.

With effect from the financial year ending on March 31, 2023, the ATR requirements are proposed to be gradually implemented for PIEs, beginning with Statutory Auditors of the Top 1000 Listed Companies (by market capitalization). Within three months of the end of each financial year, the ATR must be published.

NFRA has also decided to seek public comments/suggestions on the contents of the ATR by 16 February 2023.

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