The National Financial Reporting Authority (NFRA) has floated draft procedures for submission of audit logs to the regulator by audit companies and chartered accountants (CAs). This is part of the process to bring in more accountability and transparency in the auditing process. The regulator has also sought comments from stakeholders on the same by the end of this month.
NFRA’s draft procedures mandate that audit documentation shall be done to enable external inspections. All entities must establish policies and procedures to organise and maintain audit files. These files will be submitted to the NFRA in an electronic format and a log register shall be maintained for hard copies. The log register will also be submitted to the NFRA. It may also be noted that one of the purposes of audit documentation is enabling the conduct of external inspections in accordance with applicable legal, regulatory or other requirements,” NFRA said.
As required by law, all entities must establish policies and procedures to ensure that audit files are organised and maintained in a manner completely consistent with the law, and are retained and accessible as long as prescribed. Similarly, audit file management requirements should be incorporated into the entity’s IT policies, it added.
Commenting on submission of audit logs along with reports, AMRG & Associates chief executive officer Gaurav Mohan said audit responsibility and accountability are hierarchical, whereby every subordinate is answerable to the superior for her work. Auditor responsibility is well allocated between various positions – interns, associates, managers, directors and partners.
Every person on the audit team has an evolved mechanism of recording and logging audit finding on a regular basis, which lays down the foundation of audit evidence. Submission of complete audit engagement files to the NFRA means submitting the entire logbook of identification, evaluation, and reporting of inherent weaknesses in financial statement. This move is expected to give jitters to the audit partner, which will now be under lens for every decision made in the hierarchy by the audit team,” he pointed out.
Welcoming the move, Nangia & Co partner (audit & assurance) Prateek Agarwal said stakeholders including banks, investors, vendors, shareholders and more importantly, regulators, look towards auditors to maintain as well to demonstrate integrity.
We would also like to emphasise that as specified in draft rules, these draft procedures specified are generic procedural requirements and not a full specification for audit files, and hence these form only a baseline which sets out the minimum requirements necessary to be complied with by audit firms while submitting audit files to the NFRA for any purposes. The respective auditing standards will continue to be applied on all the audit documentation requirements,” he said.