Last updated: 20 Oct 2025 11:00 Posted in:
India’s National Financial Reporting Authority (NFRA) is recalibrating its approach to audit oversight. We examine what’s changing, what it means in practice, and how firms – whether global networks or small regional practices – should prepare.
The NFRA has until now focused its activities on issuing inspection reports – highlighting shortcomings in documentation, independence and procedures – as well as issuing related penalties and sanctions. As a result, the regulator was largely reactive. Auditors were only forced to engaged meaningfully with NFRA when something had already gone wrong.
However, the NFRA intends to raise the quality of audit across India through a mixture of proactive outreach, feedback mechanisms and stricter expectations. For accountants and audit professionals, these changes will affect their daily working practice, client relationships, and the economics of audit work.
The new strategy
From 26 September 2025, NFRA will launch a series of city-based outreach programmes, starting in Hyderabad, then moving to Indore on 6 October and beyond. These initiatives mark a deliberate shift from reactive regulation to collaborative engagement, though against a backdrop of mounting scrutiny.
Outreach programmes
Under the title ‘Creating a better financial reporting world’, these outreach programmes are structured workshops and technical sessions designed to address practical audit challenges. They are intended to clarify NFRA’s expectations, and build a baseline of best practices across firms of all sizes. They signal a focus on auditor behaviour and professional scepticism, rather than mere technical compliance.
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Importantly, these initiatives don’t mean that there will be less enforcement. The NFRA will still continue to inspect for insufficient documentation and weak scrutiny, and penalties or debarments will still be on the table. Rather, the NFRA is adding a forward-looking dimension to its oversight. Accountants should view this as help with accountability, not as a softening of the rules.
Why this matters for accountants
Raising standards of audit quality: The NFRA is emphasising the qualitative aspects of auditing: the use of professional scepticism, quality of judgment, and the completeness of documentation. Firms will need to demonstrate not just that procedures were performed, but that they were performed thoughtfully, contemporaneously and with clear rationale.
Extending reach beyond the big firms: Outreach is deliberately aimed at firms of all sizes, including smaller and mid-tier practices that may lack the resources of the Big Four. This signals the NFRA’s intent to raise the entire baseline of audit quality, not just at the top end of the market. For smaller firms, this could mean heavier compliance costs, but also greater clarity about what is expected.
Reshaping independence practices: The NFRA has repeatedly flagged concerns around auditor independence, particularly in relation to non-audit services. Firms will need to revisit their service offerings, client portfolios and internal conflict-check systems to ensure compliance with both the Companies Act and global best practices.
Aligning with global standards: Because Indian companies are deeply embedded in global supply chains and capital markets, the NFRA’s push has cross-border implications. Group auditors abroad will expect Indian component teams to meet higher quality thresholds, affecting everything from group reporting to cross-jurisdictional reviews.
How to prepare
The next six months should be treated as an implementation sprint. Accountants and audit partners can prepare by conducting a rapid review of their engagements against the NFRA’s areas of focus: independence, related-party transactions, revenue recognition, management estimates and internal controls.
They should identify where their documentation is weakest and prioritise the improvements. The documentation should highlight explicit links between risks, procedures and results. Templates should be developed, requiring auditors to articulate why each procedure addresses a given risk. Mandatory completion checks should prevent sign‑off without core documentation in place.
Training should be built around case-based learning: bank confirmations that don’t reconcile, last-minute adjustments to avoid loan covenant breaches, or transactions with opaque related parties. Teams should develop a ‘challenge log’, recording the questions raised and how they were resolved.
Auditors should move away from end-of-engagement cold reviews toward in-process quality checks. Milestone reviews can challenge scoping, materiality and high-risk areas before fieldwork is completed. Finally, auditors and accountants should be explicit with clients about the rising audit effort. Where appropriate, reprice engagements or rescope them to essential, risk-driven procedures. Communicate to audit committees and boards that stronger audits come with additional time and cost – but deliver greater assurance and reduced regulatory risk.
What’s already changing
Accountants are already feeling the impact of the NFRA’s evolving stance. Several clear trends are emerging across firms:
Stricter internal reviews: Many firms are introducing pre-sign-off ‘hot reviews’ to ensure that audit planning, testing and documentation withstand regulatory scrutiny.
Electronic documentation platforms: Migration to digital audit tools with robust version control is accelerating, reducing risks of backdating and incomplete records.
More conservative independence policies: Firms are redrawing service boundaries and tightening escalation protocols for potential conflicts.
Training focused on judgment: Moving beyond technical standards, training now emphasises how to exercise scepticism, investigate anomalies and challenge management effectively.
Portfolio adjustments: Some firms are stepping back from high-risk engagements where the regulatory or reputational cost outweighs the potential revenue.
For many firms, these changes come with added cost and time pressures. More documentation, more reviews and more senior oversight mean longer audit cycles. Smaller firms, in particular, risk a squeeze on profitability unless they can pass on costs or gain efficiency elsewhere.
Wider implications beyond India
The NFRA’s moves are not occurring in isolation. They intersect with broader trends across Asia and global assurance practices:
Group audits: Multinational auditors will expect Indian components to meet the NFRA’s higher standards, increasing pressure on cross-border consistency.
Sustainability and ESG: As India ramps up non‑financial reporting requirements, the rigour that the NFRA demands for financial audits will likely extend to ESG-related assurance.
Regional convergence: Similar regulatory shifts in Japan, Korea, Taiwan and Singapore suggest that Asia is converging toward tougher assurance regimes.
Investor confidence: Stronger audit quality in India can bolster market trust, potentially reducing the ‘governance discount’ that foreign investors apply to valuations.
Firm consolidation: If smaller firms cannot absorb the cost of compliance, the market may see mergers, alliances or exits from high-risk audit segments.
Future implications
The NFRA’s outreach programmes are a signal of regulatory intent: audit quality must improve and the regulator will work with you – but also hold you accountable. For firms, the imperative is clear: tighten independence and documentation, and coach teams to demonstrate professional scepticism in the file.
If the NFRA’s outreach succeeds, the Indian audit landscape should look noticeably different by late 2026. There should be cleaner, more complete audit files with unambiguous evidence chains. Stronger independence controls will be clearly documented and systematically applied, and audits will be conducted by early-stage assessments rather than last-minute fixes. Boards and audit committees will be likely to accept revised fees and timelines in exchange for higher assurance.
For accountants, this represents both a challenge and an opportunity. Those who adapt early will gain credibility with clients, regulators and investors. Those who lag risk penalties, reputational damage or even exit from public interest audits. This is more than compliance – it’s about credibility. The firms that invest now, both in systems and culture, will not only avoid painful inspection findings but also strengthen their position in an increasingly competitive and global audit marketplace.
"For accountants, this represents both a challenge and an opportunity. Those who adapt early will gain credibility with clients, regulators and investors. Those who lag risk penalties, reputational damage or even exit from public interest audits. This is more than compliance – it’s about credibility."