Aligning with global audit norms key to Viksit Bharat vision: NFRA Chairman

Ajay Bhushan Pandey says the latest reforms proposed to India's audit standards are historic and long overdue

Ajay Bhushan Pandey, chairman, National Financial Reporting Authority (NFRA), in an interview with Ruchika Chitravanshi in New Delhi, says the latest reforms proposed to India’s audit standards are historic and long overdue. Edited excerpts:

 

You have shared your recommendations with the Ministry of Corporate Affairs (MCA) on revising audit standards. What feedback have you received from the government? 

In our most recent meeting, which included representatives from the Comptroller and Auditor General (CAG) and regulators, there was a unanimous agreement — except with the Institute of Chartered Accountants of India on a few matters — to align India’s auditing standards with global benchmarks. One specific recommendation concerns SA 600, on which we conducted public consultation. The response was positive, with contributions from audit experts, leading audit firms, business chambers like the Confederation of Indian Industry, and industry leaders. 

The Committee on Corporate Governance, headed by Uday Kotak, and the Company Law Committee, which consisted of experts from industry, too had supported such alignments. 

The government, under the established legal framework, will now review these recommendations and decide on their adoption. 

Critics of the revised standards are reportedly approaching the MCA to oppose the alignment with global standards, such as ISA 600. Is there room for resolving these differences? 

Aligning with global audit standards is critical to achieving the vision of Vikshit Bharat (Developed India). High-quality corporate governance and robust financial reporting are essential in building investor trust, both domestically and globally. 

These recommendations weren’t created in isolation — they’ve been developed over several years through rigorous deliberation, with inputs from multiple regulators. The NFRA includes representation from the CAG, Reserve Bank of India, and Securities and Exchange Board of India, ensuring diverse perspectives, and these regulators have supported alignments with international standards. Together, we believe aligning with global standards is non-negotiable for India’s economic credibility. 

How will these changes transform the audit landscape in India? 

This reform is historic and long overdue. Across the globe, corporate scams exposed over the past decades have highlighted weaknesses in auditing standards. Laws like the Sarbanes-Oxley Act addressed many such loopholes internationally. 

Unfortunately, in India, we still have gaps. High-profile failures like Dewan Housing Finance, Café Coffee Day, Reliance Home Finance, and YES Bank did not occur overnight. These corporate collapses raise a critical question: Where were the auditors while these issues brewed for years? 

The revised standards will strengthen auditors’ accountability and make it difficult for them to overlook early warning signs. Diversions of funds will be flagged earlier, enabling corrective action to safeguard investors and creditors. This will enhance Corporate India’s credibility in global and domestic markets. 

By addressing these points, the revised standards will set a new benchmark for audit quality in India, safeguarding public trust and fostering confidence among global and domestic investors alike.

 

 There is concern that the new standards might lead to big audit firms taking over the work of smaller firms. What’s your take on this? 

The concern is misplaced. The revised SA 600 doesn’t mandate the principal auditor and component auditors to be the same. It only ensures that principal auditors supervise and access the component auditors’ work papers. 

Supervision does not equate takeover. If there is evidence of concentration, the government could cap the percentage of subsidiary audits performed by a single auditor. 

Will these changes benefit small and medium-sized audit firms? 

Absolutely! The revised standards, especially SA 600 and SA 299, will foster collaboration between large and smaller audit firms. Component auditors — often smaller firms — will gain knowledge and experience by working under principal auditors. This cross-learning is transformative. Just as India’s information-technology (IT) sector grew through exposure to global best practices, smaller audit firms can evolve into global players through adherence to these standards. In IT we saw how Indian startups such as Infosys became global companies. There is no reason why this would not happen in audit. 

Will these new standards require changes in other regulations like Sebi’s Listing Obligations and Disclosure Requirements? 

Sebi will assess the impact of the new standards and take appropriate steps once they are notified. 

Critics argue the NFRA imposes disproportionately high penalties. 

The NFRA’s penalty structure is defined by law, based on the annual income of audit firms. Penalties serve as a deterrent and are benchmarked against practices followed by global regulators. This ensures consistency and fairness while maintaining a strong emphasis on accountability.