Statutory Auditors To Submit Annual Transparency Report, Says NFRA

The National Financial Reporting Authority (NFRA) has issued a draft format of the Annual Transparency Report (ATR) to be submitted by auditors and audit firms every financial year.

The gradual implementation of this filing will start with the statutory auditors of the top 1,000 listed companies by market capitalisation on March 31.

Audit firms will have to provide the details of their ownership and legal, governance and management structures.

The transparency reports will cover the details about the revenues of the statutory auditor and its network firm for the current and previous years.

This will include the statutory audit and a detailed break-up of the non-audit service fees, such as attestation, assurance, and taxation services.

The audit firm will have to submit details about the network it is part of, whether in India or overseas. The details include its legal, operating structure; domicile; the nature of its activities; and services.

“The Annual Transparency Report shall be published on the website of the Statutory Auditor within three months (of) the end of the relevant financial year for which the report is required,” the NFRA said.

A copy of the report will be filed with the NFRA before it is published on the firm’s website.

The report will require the firms to give a brief description of the audit methodology and overall internal quality control systems.

They will also have to report professional and technical education for the professional staff along with the remuneration and compensation of its partners and senior staff.

“The Report shall be approved by the persons required to approve the financial statements of the Statutory Auditor,” the NFRA has proposed.

The statutory auditors will have to give details about the working alliances, collaborations, licensing, and knowledge-sharing arrangements with any third party or organisation in India or abroad.

The date of the most recent internal review of its quality control mechanisms, including compliance with independence requirements, results of this review, and remedial actions to address the weaknesses and non-compliances are also among details sought by the NFRA in the draft reporting format.

“The information contained in the ATR will be useful to the Investors, Audit Committees, Independent Directors and public at large,” the NFRA said.

The NFRA has given time till February 16 for public comments.

The authority said the ATR requirements were on the lines of the contemporary international best practices implemented by certain prominent independent audit regulators in other jurisdictions.

In a press statement the NFRA said it had introduced the draft requirements “as a step towards 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”.

In November last year, the NFRA had issued audit inspection guidelines to identify areas and opportunities for improvement in the audit firm’s system of quality control. The inspection report, the NFRA said, could lead to financial reporting quality reviews of financial statements of the companies whose audits are selected for inspection.