New Obligation for Large Listed Firms to File Annual Transparency Reports

The NFRA’s focus on the top 1,000 listed companies will ensure that the largest companies are held accountable to the highest standards of transparency.

NEW DELHI (India CSR): The Indian government is set to introduce an obligation for auditors of large listed firms to file annual transparency reports, aimed at increasing transparency in the functioning of auditors. The National Financial Reporting Authority (NFRA), which is the regulator of the auditing profession and accounting standards, had earlier issued a draft paper for suggestions, with the final announcement expected to be made shortly. The NFRA is expected to mandate auditors of large listed firms to file these reports from the current fiscal year.

Objective of the Annual Transparency Report

The objective of the annual transparency report is to ensure better governance of auditors. The NFRA aims to increase transparency in the functioning of auditors of large listed firms by making it obligatory for them to file annual transparency reports. The NFRA aims to ensure that the public has a better understanding of the auditors’ role and their working alliances, including any collaborations and membership of international networks.

Draft Requirements for Preparation of Annual Transparency Reports

The NFRA published draft requirements for preparation of these ATRs in January 2023, which were open for public comment until February 24. The ATR framework is not expected to undergo significant changes following the public comments, however, there may be teething troubles as firms attempt to compile the reports for the first year of implementation.

Gradual Implementation of the ATR Requirement

According to the draft, the requirement of an ATR would be implemented gradually across the audit profession, starting with the auditors and audit firms performing the audit of the top 1,000 listed companies (by market capitalisation) from the financial year ending March 31, 2023. The gradual implementation will allow audit firms to adjust to the new requirements while providing the NFRA with time to assess the effectiveness of the ATR framework.

Details to be Included in the Annual Transparency Report

The ATR is expected to provide a detailed description of the statutory auditors, information about collaborations, working alliances and membership of any international network, details about revenue, as well as information on audit and non-audit services provided by them. Audit firms would also be required to include information about their internal governance systems. After submitting the ATR to the NFRA, audit firms would then be required to publish the report on their websites.

(India CSR)