NFRA set to get a legal backing to ask audit firms for more disclosures
March 26, 2026
The Corporate Laws (Amendment) Bill, 2026, introduces Section 132A, mandating auditors to disclose registration and disciplinary details to NFRA before appointment.
The government is planning to increase the regulatory oversight over domestic audit firms by asking firms to mandatorily disclose significant amount of information with the audit watchdog National Financial Reporting Authority (NFRA). A newly inserted section 132A in the Corporate Laws (Amendment) Bill, 2026 said that individuals or audit firms cannot be appointed as auditors for specified companies unless they first intimate their ICAI (Institute of Chartered Accountants of India) registration details to NFRA in the prescribed manner.
“The auditors of companies or class of companies or bodies corporate shall file such documents or returns or information with the NFRA, in such form and manner, within such period, and on payment of such fees, as may be specified by regulations by the said Authority,” the draft Bill said.
Despite the fact that the proposed law, which seeks to amend LLP Act 2008, and the Companies Act 2013, has now been referred to the joint parliamentary committee (JPC) for further scrutiny, auditors have raised concerns on the specific proposal.
“My worry is that it will not just be an administrative exercise. They will take information, and see whether a firm is fit to do audit or not,” said senior partner at a Big Four firm, on condition of anonymity.
At present, Section 132 of the Companies Act empowers NFRA to oversee audit quality, conduct inspections, and take disciplinary action against auditors for professional misconduct. However, there is no requirement for prior intimation or continuous reporting by auditors before or during the course of an audit engagement. “Section 132A represents a shift from a predominantly post-facto supervisory framework to a more proactive and compliance-driven regulatory approach,” said Janak Rathod, partner at NPV & Associates.
Experts said that the audit firms will be asked to submit details beyond their ICAI’s registration, and would likely cover areas like ongoing disciplinary proceedings, global network arrangements (especially in the case of Big Four firms), etc.
NFRA currently doesn’t interfere when an audit firm starts a new audit assignment. But there are concerns that NFRA would be empowered to disqualify firms based on the information sought under the proposed mechanism. “Today, auditors don’t need NFRA’s go-ahead to take on new work even if there are disciplinary cases going on against them or their firms. The audit firms’ appointment is decided between the auditors, the company and the audit committee. Now, NFRA can come in, and get into the qualification aspects,” said partner at another large firm.
Transparency Trigger
Experts said that the weak compliance with the NFRA-2 filing could have triggered this decision. NFRA-2 is an annual return form submitted by statutory auditors to disclose details of audit assignments, quality control systems, and independence measures. Additionally, CA firms have to file Form 18 with ICAI for new registrations or to notify tweaks in the partnership structure (partners joining/retiring) or change in address. However, there’s no annual form filing process required for ICAI.
“It’s possible that if a firm has not filed its NFRA-2 form, the regulator can stop them from doing audit through a legislative backing,” said the senior partner quoted above.
NFRA has historically followed the footsteps of its counterparts in other countries such as Public Company Accounting Oversight Board (PCAOB) in US, and Financial Reporting Council (FRC) in the UK. PCAOB requires public accounting firms to submit an exhaustive annual report containing information about audit reports issued, client information, non-audit services, and fees.
“If the NFRA is influenced by PCAOB, they might ask for information beyond registration details, number of employees and number of partners, etc,” said a corporate lawyer.
To be sure, NFRA is an independent audit regulator for public interest entities (PIEs), including all listed companies and large unlisted public companies.
The Bill also said that in case of non-compliance, failure to furnish required information, a penalty of Rs 25,000 will be imposed, with an additional Rs 500 per day of continuing default, subject to a maximum of Rs 25 lakh. Further, if an auditor furnishes false information, omits material facts, or tampers with required documents, a higher penalty applies – starting from Rs 50,000, with Rs 1,000 per day of continuing default, capped at Rs 50 lakh.
[The Financial Express]
