The National Financial Reporting Authority (NFRA) plans to scrutinize auditors, including the Big Four, for providing “non-audit services” to the same clients they audit. This move may spark controversy as it challenges the existing norms set by the Institute of Chartered Accountants of India (ICAI). While the auditors are bound by the ICAI’s code of ethics, the prohibition on non-audit work is not clearly defined. Although Section 144 of the Companies Act 2013 restricts certain services, there are still many services that auditors can offer to their clients.
The NFRA aims to regulate services beyond those listed in Section 144 and may extend the prohibition to any other services as prescribed. Audit firms, especially the Big Four, tend to avoid providing non-audit services to listed entities to uphold their reputation, but they are less cautious with unlisted firms.
This regulatory move is perceived as potentially burdensome and going beyond internationally accepted practices by some industry experts. Non-audit services are often lucrative for audit firms, unlike the auditing process itself.
The ICAI’s guidance note emphasizes that independence is a subjective matter for auditors. NFRA’s focus on non-audit work is evident from its inspection reports and actions against auditors involved in professional misconduct.