NFRA, ICAI mull mechanism to boost regulatory coordination
New Delhi, Mar 16, 2026
Synopsis
To promote harmony and effective collaboration, India’s premier audit watchdogs, NFRA and ICAI, are setting up a systematic approach for better coordination. This proactive measure is designed to smooth over previous public disputes and enhance teamwork.
The National Financial Reporting Authority (NFRA) and the Institute of Chartered Accountants of India (ICAI) are exploring a "formal mechanism" to strengthen regulatory coordination, as they seek to turn the page on their public friction over a key audit standard revamp and start a new chapter of collaboration.
The two audit watchdogs, said people familiar with the development, are deliberating on the mechanism which would potentially reduce the scope for regulatory tussles.
The planned mechanism would warrant more frequent meetings of their senior functionaries on key matters, greater information sharing, especially on auditors' role in any corporate fraud, and more joint efforts to strengthen audit quality in India, the people told ET.
"The mechanism would ensure regular interactions between the regulators. The ultimate goals of both of them are the same-improving audit quality and strengthening the audit ecosystem in India," said one of the persons, who did not wish to be identified.
"Their roles are complementary and not contradictory. So, greater collaborations would be productive." To be sure, ICAI president and two other senior functionaries of the institute are on the NFRA board that comprises 13 members, including the chairman. But a structured mechanism for regular engagement between the two watchdogs would lead to greater understanding of each other's role and sensitivities, the people said.
ICAI to stop Gensol scrutiny after NFRA probe
The ICAI, which had initiated a "desktop review" of the books of Gensol Engineering following an alleged fraud, has resolved to formally stop its scrutiny after the NFRA's decision to start its own probe, said another person.
It may also halt its scrutiny of the books of IndusInd Bank, as the NFRA is looking into the case. As per rules, once the NFRA starts a probe, the institute can't proceed with its own action in the matter.
The institute is learnt to have conveyed to the NFRA that it doesn't intend to in any way encroach on the latter's domain of probing auditors, especially in cases of frauds involving auditors of listed companies.
Regulatory ambit
As per the Companies Act, the NFRA has powers to take action against auditors of all listed and large unlisted "public interest" companies for professional lapses. It can also take up any audit case referred to it by the government.
Before the NFRA's emergence, the ICAI had almost exclusive jurisdiction over disciplining all the auditors. The corporate affairs ministry and regulators, such as the Securities and Exchange Board of India, have only limited oversight over auditors. Currently, the ICAI acts against auditors of mainly small and mid-sized unlisted companies for professional wrongdoing.
Moreover, section 143 (10) of the companies law empowers the government to notify audit rules, upon consideration of all the standards recommended by the ICAI and duly examined by the NFRA.
Past differences
In 2024, the institute publicly opposed the NFRA's bid to revise the Standard of Auditing (SA) 600 in sync with global rules and make the principal auditor of a corporate group responsible for the entire group's financial statements.
The institute had argued that any such move would lead to a concentration of audit work with large firms at the cost of small and mid-sized ones that are the backbone of the Indian audit ecosystem.
But the NFRA said that the revised standard would bolster audit quality in India and cited its own probe into various corporate frauds to buttress its claims.
[The Economic Times]
