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NFRA to Engage with Some Big Listed Cos on Audit Compliance

The National Financial Reporting Authority (NFRA) is planning to directly engage a few large listed companies for the first time by June-end to “sensitise” them about accounting standards and help curb corporate frauds, said people familiar with the matter. The regulatory outreach could involve the NFRA’s engagement with audit panels, independent directors, chief financial officers and others on the boards of these companies, said one of the persons. The regulator is close to finalising a framework to hold such huddles and may invite listed companies, where large public interest is involved, for such meetings, according to another person.

“The idea is to encourage regular two-way communication between the audit committees of companies or those charged with their gover nance and the auditors,” said one of the persons, who did not wish to be identified. “They will also be sensitised about compliance with the stipulated audit standards and its importance in early detection of stress and reading other warning signs.” Company representatives will also get to air their views before

ISTOCK the regulator on making the audit ecosystem more robust, said the people. ET reported on January 18 reported on the NFRA’s plan to engage such key persons of listed companies as they are “charged with the governance” of these entities. The move comes amid a heightened focus on the part of the authorities on protecting retail stock investors. Earlier this month, finance minister Nirmala Sitharaman exhorted market intermediaries to help preserve the trust of Indian households that have made a “generational shift” in deploying a larger part of their savings in the stock markets. Any efforts toward early detection of stress in listed companies or curbing corporate frauds which can be done through accurate and transparent auditing of the company’s financials will serve the interest of both retail and other investors.

The NFRA is undertaking the annual inspection of eight key audit firms, including the top five (EY, Deloitte, KPMG, PwC and Walker Chandiok & Co). focusing on the processes they follow and the standards they adopt, said the people cited earlier. It may wrap up the exercise by October, one of them said. The regulator has also identified about 55-60 listed companies, which have been audited by these firms, to gauge their compliance and the quality of audit, said the people. The regulator is also asses sing the top five audit firms’ compliance with the suggestions made in its December 2023 reports in which it had flagged deficiencies in their work processes, including on non-audit services, according to people in the know.

ET had first reported on January 9 that the NFRA was planning to undertake inspections of major audit firms annually.

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