Ajay Bhushan Pandey, Chairperson of the National Financial Reporting Authority (NFRA), emphasized that audit committees must play a proactive role in ensuring the independence of auditors. Speaking on strengthening corporate governance, he warned that conflicts of interest and lack of oversight could compromise audit quality and investor confidence.
The remarks highlight NFRA’s ongoing push for greater accountability and transparency in India’s financial reporting ecosystem.
Why Auditor Independence Matters
Independence is the cornerstone of credible auditing. If auditors face undue influence from management or boards, the reliability of financial statements can be undermined. This not only impacts investors but also erodes public trust in markets.
NFRA has consistently stressed the need for robust governance mechanisms to protect auditor independence, ensuring that external auditors can provide unbiased opinions on company accounts.
Role of Audit Committees
Audit committees, as mandated under corporate governance norms, are expected to act as the first line of defense in safeguarding auditor independence. According to the NFRA Chair:
Committees must actively oversee auditor appointments and remuneration.
They should ensure auditors are free from management pressures.
Continuous evaluation of audit quality must be part of their oversight function.
This framework is vital for preventing potential conflicts and ensuring transparency in financial disclosures.
Policy and Governance Perspective
NFRA has been strengthening regulatory oversight over audit firms, pushing for stricter standards, disciplinary actions, and enhanced disclosures. However, Pandey noted that regulation alone cannot ensure independence—corporate boards and audit committees must adopt a culture of integrity and accountability.
This collaborative approach is critical to aligning India’s audit ecosystem with global best practices.
Why This Matters
For Companies: Reinforces the importance of governance and accountability in audits.
For Investors: Builds trust in financial statements and market transparency.
For Regulators: Supports NFRA’s mandate of improving audit quality in India.
Ensuring auditor independence is not just a regulatory requirement—it is central to India’s ambition of building a robust, transparent, and globally credible financial system.
