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Crowdsourcing ideas can help auditors meet stakeholder expectations: NFRA chief

New Delhi, November 19, 2022

Excessive dissection of audit expectation gap delays solution, says Pandey

NFRA chief Ajay Bhushan Prasad Pandey pitched for crowdsourcing efforts to identify risks to help auditors meet stakeholder expectations as well as in looking at new risk areas.

The moot question of meeting expectations of stakeholders is not being rightly addressed as the solution to the underlying cause is getting postponed or wished away by excessive dissection of something called ‘audit expectation gap’, he added.

Citing the Brydon review report in the aftermath of the Carillion failure in the U.K., Mr. Pandey said he tended to agree with the view that the problem is not one of expectations, rather there was a grave ‘delivery gap’ when it came to audit.

Carillion Group plc, which was a leading construction and services company, went into liquidation in 2018.

“In the era of Internet and social media platforms, there is a need to leverage them and evolve suitable mechanisms and means for ‘two way’ communication between the stakeholders and auditors, of course via the audit committees,” the NFRA chief said in a speech.

The head of the National Financial Reporting Authority (NFRA) mentioned the Brydon review report on the suggestion that an audit committee may publish a formal invitation to shareholders to express any requests they have regarding areas of emphasis they wish the auditor to incorporate in the audit plan.

“This innovative method of crowdsourcing of risk identification through the shareholders will not only help meet the expectation gap of the shareholders but also empower and strengthen auditors to look into several areas which the conflicted management may not ideally want them to look into.

“This will also go a long way in establishing a transparent regime of corporate governance for which we have been striving for decades,” he said.

He was addressing various audit firms on the topic of regulatory expectations from the profession in India on Friday in Mumbai.

On the issue of why auditors are sometimes not able to identify the risks of corporate failures, Mr. Pandey said his personal view was that before passing a value judgement on the matter, all players, which include governments, regulators and companies, must appreciate the challenging environment in which auditors operate.

"We must evaluate whether they have real freedom and independence or face practical constraints while doing audit in the manner they want and whether there are factors which limit their professional freedom, independence, and their scope," he noted.

Further, the NFRA chief said everyone should put their minds together to see how technology can be used in the areas of audit too.

"We must be aware that the stakeholders' expectations and technology are going to change the nature of the audit in future."

He also emphasised on the need to gradually start developing global sustainability reporting standards in other areas of environmental and social risks to the business and industry.

[The Hindu]

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