NFRA bats for effective, regular two-way communication between auditors and Boards

National Financial Reporting Authority (NFRA) along with other regulators is focusing more on improving “effective two-way communication” between the auditors and the audit committee of the board and independent directors of the company. Steps are being considered to make sure that the auditors engage with the executives charged with company governance throughout the year. Such steps are considered in order to prevent IL&FS-style scandals from recurring, according to sources close to the development, reports the Economic Times.

According to the report, the goal is early detection of corporate fraud or stress and allow the organisation or authorities involved to take rapid corrective action. It may also minimise the influence of firm management on auditor independence.

Regulators such as NFRA and SEBI have stated that they will increase their scrutiny of the requirement for an “effective two-way communication process” soon. Currently, in most cases, auditors tend to provide their report or presentation to the company’s audit committee, which primarily includes independent directors, right before the board is set to approve the financial statement. So, the auditor’s report isn’t scrutinised properly by the audit committee. Unless the auditors remain engaged with those charged with the governance of a company throughout the year and sensitise them regularly as to what is really happening in the company, the audit committee won’t be able to ask the management to do the right things.