Bringing more transparency in the functioning of auditors of large listed firms, the government is set to make it obligatory for them to file annual transparency reports. The National Financial Reporting Authority (NFRA), which had earlier floated a draft paper for suggestions, is expected to make a formal announcement on it shortly, mandating auditors of large listed firms to file these reports, starting from the current fiscal.
“The objective of the annual transparency report is to ensure better governance of auditors. The public comments have come in and it is likely that the NFRA will start implementing this requirement at the earliest,” said a person familiar with the development.
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The NFRA, which is the regulator of the auditing profession and accounting standards, published draft requirements for preparation of these ATRs in January this year. The deadline for submission of comments was initially kept as February 16, but was later extended to February 24.
The NFRA is understood to have examined the comments and it is unlikely that there will be a significant change in the ATR framework. The only concern is whether firms would be able to compile the reports from this fiscal year, as the draft had proposed that each firm should publish it within three months of the end of a financial year. “There could be some teething troubles as it would be the first year of implementation,” noted another source.
According to the draft, the requirement of an ATR would be implemented in a gradual manner across the audit profession, engaged in the audit of public interest entities falling within the purview of the NFRA, starting with the auditors and audit firms performing the audit of the top 1,000 listed companies (by market capitalisation) from the financial year ending March 31, 2023.
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The ATR would provide a detailed description of the statutory auditors, details about any collaborations, working alliances and membership of any international network, information on their revenue, apart from audit and non-audit services provided by them, as well as details about internal governance systems. Audit firms would have to first submit it to the NFRA and then publish it on their websites.