NFRA Highlights Auditor Oversight in Group Financial Statements

The National Financial Reporting Authority (NFRA) criticizes some auditors for misinterpreting their obligations, especially in audits of group financial statements. Highlighting cases like Reliance and Coffee Day, NFRA stresses auditor responsibility in fraud prevention and urges adherence to standards like SA 600.

The National Financial Reporting Authority (NFRA) has issued a statement criticizing certain auditors for improperly interpreting their obligations during group financial statement audits. The principal auditors' failure to perform adequate procedures, particularly in audits involving multiple company components, has come under scrutiny.

This circular is set against the backdrop of ongoing disagreements between NFRA and the Institute of Chartered Accountants of India (ICAI) over revisions to Standard of Auditing (SA) 600, relevant when auditing companies with subsidiaries and associates. NFRA's observations underline gross negligence in notable cases, citing alleged financial misconduct in companies like Reliance Capital and Coffee Day Enterprises.

NFRA emphasizes that principal auditors must apply special consideration to audits involving subsidiaries or branches and cannot rely solely on component auditors' reports. This circular aims to reinforce auditor obligations and prevent future audit failures of Public Interest Entities under Rule 3 of NFRA rules 2018.

(With inputs from agencies.)