In a first of its kind move aimed at improving Audit Quality, The National Financial Reporting Authority (NFRA) on Monday proposed introducing Annual Transparency Reports requirement for Audit Firms. The watchdog has come out with draft requirements to be followed by auditors and audit firms for preparing Annual Transparency Reports (ATRs).
According to NFRA, The effort is aimed at enhancing the transparency about management and governance of audit firms and their internal policy framework to ensure high quality audits and preventing conflict of interest by maintaining independence.
“The ATR Requirements are Proposed to be Implemented in a gradual manner for PIEs (Public Interest Entities) starting with Statutory Auditors of top 1,000 Listed Companies (by market capitalisation) with effect from the financial year ending on 31 March 2023,” The regulator said in a release.
An audit firm will have to publish the ATR within three months from the end of each financial year.
“Transparency report containing certain critical information about the auditor’s operational activities, management, governance and ownership structures, and policies and procedures necessary to deliver high-quality audits etc. The information contained in the ATR will be useful to the investors, audit committees, independent directors and public at large,” the release said.
NFRA noted that the proposed ATR requirements are on the lines of the Contemporary International best practices implemented by certain prominent Independent Audit regulators in other jurisdictions.
“Indian companies have become significant constituents of the global economy and India has evolved as a global center of excellence in the delivery of financial reporting and audit services to a large number of multi-national corporations raising expectations for sound and high quality codes and practices comparable to global benchmarks,” it added.