NFRA to list out frequent lapses to alert auditors, managements

The National Financial Reporting Authority (NFRA) will soon issue a circular outlining the frequently observed deviations in the preparation of financial statements and statutory audits to give guidance to managements and auditors on practices they should strictly avoid.

- Gireesh Chandra Prasad

These deviations were noticed in specific cases during investigations and audit quality reviews done by NFRA in the last few years. Given the impact these deviations can have on corporate governance, NFRA wants the industry at large and the auditors to take note and consciously avoid them.

NFRA’s probe and audit quality review reports refer to various requirements account preparers and auditors have to follow under various statutes, ranging from the Companies Act and rules to accounting and auditing standards and guidelines on ethics, in addition to explaining how NFRA’s counterparts such as the Public Company Accounting Oversight Board (PCAOB) of the US look at certain violations.

Although these clarifications and regulatory perspective give a clear picture of NFRA’s expectations about adherence to the standards of financial statement preparation and audit, these are part of regulatory orders in individual cases. Once the practices to be avoided are flagged in a comprehensive circular, it is expected that auditors and managements may not take widely liberal interpretations of the regulatory requirements.