NFRA Flags Weak Oversight By Audit Committees On Asset Impairment

The National Financial Reporting Authority (NFRA) has raised concerns over weak engagement between statutory auditors and audit committees, urging stronger oversight of accounting estimates and impairment assessments.

In its Auditor-Audit Committee Interaction Series 4, NFRA pointed out problems in how impairment of non-financial assets, like property, equipment, intangible assets, and goodwill, is assessed. The regulator noted that Boards must ensure consistency in accounting policies and reasonableness in judgements under Section 134(5) of the Companies Act, 2013, while SEBI regulations require audit committees to review major estimates. NFRA suggested that committees should ask auditors about how assets are divided into cash-generating units, the assumptions used for cash flow predictions and discount rates, and how accurately impairment is recognised and reported. The report stated that improving audit committee oversight is essential to enhancing audit quality and safeguarding investor interests.