The National Financial Reporting Authority (NFRA) is reassessing its strategy following a decision of India’s Delhi High Court that invalidated its notices to auditors involved in the IL&FS audit case.
The court’s ruling, which focused on procedural aspects, has implications for the oversight of audit practices in India.
This comes after NFRA chairperson Ajay Bhushan Prasad Pandey noted improvements in auditing standards in recent years.
The notices in question, issued over a three-year period to Deloitte Haskins & Sells and SRBC & Co, were part of NFRA’s investigation into alleged professional misconduct during audits of IL&FS entities approximately six years ago.
The auditors and their partners were the primary targets of these notices.
While the high court affirmed NFRA’s authority to scrutinise audits conducted prior to its establishment in 2018, it nullified the notices on the grounds that the regulator had not sufficiently separated its quality review and disciplinary functions.
According to the court, decisions on disciplinary action should be made by NFRA members who are not involved in the audit review process or the creation of audit quality review reports.
The backdrop of this legal development is the 2018 default on loan repayments by IL&FS, a non-banking financial company, which led to a government intervention and the establishment of the NFRA as the national audit regulator.
A subsequent NFRA investigation, mandated by the government, uncovered alleged auditing lapses in two IL&FS group companies: IL&FS Transportation Networks and IL&FS Financial Services.
These findings have been contested in the Delhi High Court.
This case emerges in the context of broader liquidity issues within the NBFC sector, which has prompted NFRA to scrutinise auditing practices more closely.
Two persons aware of the development were quoted by The Mint as saying: “NFRA is weighing the options, one of which is an appeal specifically against part of the order on this technical aspect of division of functions. The other findings of the high court in this case are favourable to NFRA.”
“NFRA considers next steps in IL&FS audit notices case ” was originally created and published by International Accounting Bulletin, a GlobalData owned brand.
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