The National Financial Reporting Authority (NFRA) issued a draft format for the Annual Transparency Report (ATR), which needs to be submitted by auditors and audit firms at the end of every financial year.
On March 31st, 2023, the implementation process should be gradually applied to the statutory auditors of the top 1,000 listed companies by market capitalization.
NFRA is also about to seek public comments and suggestions on the contents of the ATR by February 16, 2023.
Rule 8(2) of the NFRA Rules 2018 empowers the NFRA by managing the regulations periodically and the internal processes in a way to promote audit quality, protect reputation, mitigate risks, including the risk of failure of the auditor, and take legal actions as and when required.
The National Financial Reporting Authority has made this move to enhance the transparency of the management and governance of audit firms and their internal policy framework to ensure high-quality audits, prevent a conflict of interest from happening, and thereby maintain independence in the workforce.
The drafted ATR requirements comply with the contemporary international best practices implemented by certain prominent independent audit regulations in other jurisdictions.
Audit firms will have to disclose the details of their ownership and legal, governance, and management structures, as well as the details of their revenues for the current and previous years. The report will also admit the statutory audit and a detailed break-up of the non-audit service fees, such as attestation, assurance, and taxation services.
NFRA Inform some reports:
“The Annual Transparency Report shall be published on the website of the Statutory Auditor within three months of the end of each financial year for which the report is required,” the National Financial Reporting Authority said.
A copy of the report will be produced with the NFRA before being published on the firm’s website. The report will contain details of the firm’s audit methodology and overall internal quality control systems.
“The report shall be acknowledged by the persons required to approve the financial statements of the Statutory Auditor,” the NFRA stated.
The statutory auditors will be bound to provide details about the working alliances, collaborations, licensing, and knowledge-sharing arrangements with any third party or organization based in India or abroad.
“The information mentioned in the ATR will be beneficial to investors, audit committees, independent directors, and the public at large,” the NFRA said.
The NFRA has given a chance to the public to share their views till February 16 and thereby improving the quality of the auditing process, reducing the risk of failure of the auditor, and protecting reputation.
In November last year, the NFRA issued audit inspection guidelines to identify areas and opportunities for progression in the audit firm’s system of quality control.