The Standing Committee on Finance headed by BJP MP Bhartruhari Mahtab has urged the National Financial Reporting Authority (NFRA) to establish its own dedicated cadre of skilled professionals for more effective oversight of its regulatory entities.
The Parliamentary Panel has also emphasised the need for clearer evidence of NFRA’s impact on audit quality, particularly in terms of how its disciplinary actions, inspections, and revisions to auditing standards have led to tangible improvements.
The Standing Committee has reiterated that NFRA’s primary mandate since its inception has been to ensure high-quality accounting and auditing standards while protecting investor and public interests. It acknowledged NFRA’s proactive efforts in issuing disciplinary orders, conducting inspections, strengthening group audit standards, and raising awareness about audit best practices. However, it noted a persistent gap between budget allocations and actual expenditures, raising concerns about the efficient use of resources.
Concerns Over Underutilisation of Funds
Despite receiving significant budgetary allocations, NFRA has consistently underspent its funds, the Committee observed in its latest report tabled in Lok Sabha recently. For instance, In FY 2023-24, NFRA was allocated ₹43.20 crore but utilised only ₹35.25 crore. In FY 2024-25, while the revised estimate (RE) was ₹44 crore, actual spending stood at ₹37.26 crore, falling short by ₹6.74 crore.
For FY 2025-26, the Budget estimate has been increased to ₹47 crore, partly to address staffing and operational gaps. The Committee noted that only 32 out of 69 sanctioned positions were filled in FY 2024-25, leading to concerns about workforce shortages affecting NFRA’s efficiency. To address this, it stressed the urgent need to expedite the recruitment process and create a permanent cadre of skilled professionals to enhance NFRA’s regulatory and oversight functions.
Demand for Measurable Impact on Audit Quality
While the Committee acknowledged NFRA’s initiatives in audit quality inspections and participation in global surveys, it pointed out a lack of specific details on measurable improvements. The Corporate Affairs Ministry’s (MCA) response, it noted, failed to clearly demonstrate how NFRA’s interventions—such as disciplinary actions, inspections, and revised standards—have resulted in better audit practices.
The Committee has urged the MCA to provide deeper insights into how learnings from NFRA’s orders are being implemented and whether audit deficiencies are being systematically reduced. It also recommended that NFRA expand its outreach initiatives and strengthen collaboration with key stakeholders, including audit firms; industry bodies and regulators.
Such engagement is crucial to improving audit quality and transparency, especially in high-risk sectors where financial reporting lapses can have serious consequences, according to the Parliamentary Panel.
Strengthening NFRA for Future Challenges
With NFRA’s growing responsibility in overseeing public interest entities (PIEs), the Committee emphasised the need for urgent structural and operational enhancements. This includes speeding up the recruitment process to ensure adequate staffing, ensuring full utilisation of allocated funds for operational efficiency and developing a dedicated, highly skilled professional cadre to bolster NFRA’s oversight capabilities.
By addressing these issues, the Committee believes NFRA can enhance its role as an effective audit regulator and significantly improve the quality, transparency, and reliability of financial reporting in India.
