Comments/suggestions are invited from CA firms/LLPs for any change/revision in the Draft revised policy of Empanelment of CA firms and Selection of Auditors available at
Comments/suggestions may please be provided on designated email id: saoca5@cag.gov.in by 13 January 2026 alongwith detailed justification.
Key Points of the Draft Policy of Empanelment of CA Firms/LLPs and Selection of Auditors
Legal Framework: The policy is governed by the Companies Act, 2013, specifically sections 139(5) and 139(7), enabling the Comptroller & Auditor General of India to empanel auditors for Government Companies.
Eligibility Criteria:
Only Chartered Accountant firms and Limited Liability Partnerships (LLPs) with at least one full-time FCA Partner or Sole Proprietor can apply for empanelment.
Firms must fulfill certain income criteria based on their location and partner category.
Empanelment Points System:
Point allocation is based on quantitative (e.g., number of full-time CA partners, experience, firm turnover from audit services) and qualitative factors (e.g., peer reviews, audit experience).
There are specific point awards for additional qualifications and continuous skill upgrading of full-time CA partners and employees.
Professional Track Record Implications:
Firms face penalties if partners are found guilty of professional misconduct or if the firm receives poor performance ratings.
Audit refusals and reprimands from regulatory bodies lead to point deductions and potential disqualification from future empanelment.
Aggregation of Firms:
Parent LLPs can apply for empanelment and include one Partner LLP. Both must not apply separately.
Merging firms will have a year’s grace before points for the merging partners are considered.
Audit Allotment Process:
Selection for audits is determined by correlating point scores with audit fees.
Specific criteria for major audits require firms to have adequate staffing, experience in handling large audits, and established operational years.
Rotation of Audits:
Audit appointments are typically for one financial year, with a maximum of three years for re-appointments unless ineligible based on performance or misconduct.
Special provisions apply for Maharatna Companies regarding cooling-off periods for firms that retire or surrender audits.
Criminal Proceedings Protocol:
Firms under criminal investigations may still be empaneled unless charges are filed, leading to ineligibility for future audits.
Gift City Provisions:
Specific criteria exist regarding LLPS located in Gift City and their empanelment conditions.
Educational Qualifications and Training:
Continuous professional development is encouraged and rewarded through points for further qualifications and certifications from recognized institutions.
This policy aims to ensure transparency, accountability, and competency in the selection of auditors for government entities in India.
The Institute of Chartered Accountants of India (ICAI) has found a Chartered Accountant guilty of professional misconduct following a prolonged dispute with VSS Clean Technologies Pvt. Ltd. The case involved allegations of unethical behavior, including misrepresentation, undue resistance to auditor change, and billing disputes, culminating in a penalty of Rs. 10,000 imposed on the respondent.
The controversy arose after the shareholders of VSS Clean Technologies, despite the board’s recommendation for reappointing the respondent’s firm as statutory auditors, resolved not to reappoint them during the Annual General Meeting (AGM) held on 29th September 2014. The Respondent, however, contested this resolution, communication lapses, and subsequent appointment of new auditors, leading to tension and professional clashes.
ICAI’s Board of Discipline meticulously examined the communications, including emails and letters exchanged between the Respondent, the company, and incoming auditors. It noted repeated obstructive behavior by the Respondent CA, including sending threatening messages to newly appointed auditors to discourage them from taking up auditing duties, which even resulted in the resignation of the new auditors. The Board also highlighted the respondent’s attempt to claim outstanding dues and unsubstantiated “opportunity costs” for five years; a practice deemed inappropriate and unbecoming of a chartered accountant. Furthermore, it found that CA (Respondent)’s misrepresentation as the continuing auditor to the incoming auditor was misleading, further compounding the misconduct.
Drawing from the legal framework under the Chartered Accountants Act of 1949, the Board emphasized that objections regarding removal procedures fall under the jurisdiction of appropriate legal forums and not through pressure tactics on peers or clients. This CA’s conduct, thus, was held to bring disrepute to the profession.
Despite expressing personal and economic hardships, this CA was imposed a monetary penalty and urged to adopt more professional ethics. The ruling serves as a stern reminder for practicing professionals on maintaining conduct befitting the esteemed chartered accountancy profession.
This case also underscores the importance of transparent and procedural auditor transitions in corporate governance to uphold audit quality and investor confidence. The proceedings and findings, documented in detail by ICAI’s Disciplinary Directorate, reinforce the responsibility of auditors to adhere strictly to ethical codes, especially during contentious transitions, safeguarding the profession’s dignity and public trust.
The esteemed Institute of Chartered Accountants of India (ICAI) has rolled out fresh guidelines for the presentation and disclosure of financial statements for Non-Corporate Entities (NCES), Not-for-Profit Organizations (NPOs), and LLPs.
While these guidelines are currently recommendatory in nature, make no mistake – this is the calm before the regulatory storm. The tone is clear: a uniform, corporate-style reporting format could soon become the new normal!
This move signals a major shift towards standardization and enhanced transparency so be prepared, stay ahead, -and don’t let this siren go unnoticed.
Ahead of next month’s Supreme Court hearing regarding the appeal by the National Financial Reporting Authority (NFRA) that challenges the Delhi High Court’s ruling, which annulled 11 show-cause notices issued by the audit regulator, leading audit firms have expressed concerns over the NFRA’s operations.
Insiders from the Big Five have informed Financial Express that the NFRA’s current practices violate the Companies Act of 2013. An auditor from a Big Four firm, speaking on the condition of anonymity, stated, “Regulatory bodies like NFRA need to strike a delicate balance, ensuring that while they hold auditors accountable for any shortcomings, their decisions must also appear impartial and compliant with legal standards.”
Auditors point out that Section 132 of the Companies Act and the NFRA Rules of 2018 imply a division of authority in the execution of investigations and disciplinary actions. However, sources claim that the NFRA’s executive body is managing both roles, lacking the neutrality necessary for an objective evaluation. This concern was also echoed by the Delhi High Court in its recent ruling.
Vishesh C. Chandiok, CEO of Grant Thornton Bharat, noted that regulators, like audit firms, are likewise subject to legal analysis. “India must progress to a point where stakeholders can genuinely challenge the actions of regulators or government agencies through the judiciary in a manner that is fair, transparent, and responsive, without any apprehension,” he remarked.
On the other hand, NFRA maintains that the law does not mandate a “strict division of powers or separation of functions regarding investigation, inquiry, and disciplinary procedures.”
Audit firms contend that the stringent regulatory supervision, combined with the NFRA’s perceived lack of impartiality, complicates their ability to attract and retain top talent, as many chartered accountants are increasingly gravitating towards less “risky” career paths outside of auditing.
“The NFRA must ensure its own practices aren’t fostering an environment that dissuades talented individuals from joining the profession,” the aforementioned auditor asserted.
“A capable regulator can enhance the profession’s appeal, as it demonstrates that there is genuine concern for the quality of work performed,” Chandiok added.
NFRA Marks Six Years of Enhancing Financial Reporting Standards in India
On October 1, 2024, the National Financial Reporting Authority (NFRA), India’s independent audit watchdog, celebrated six years since its establishment. This period has been characterized by significant regulatory developments aimed at enhancing corporate financial reporting standards.
Origins of NFRA
Established in the wake of a $2 billion fraud at Punjab National Bank in March 2018, NFRA was tasked with overseeing audit quality, stepping in where self-regulation by the Institute of Chartered Accountants of India (ICAI) had previously prevailed. The need for a robust regulatory authority stemmed from the critical necessity to ensure transparency, integrity, and accountability in financial reporting.
Overview of Debarment Trends
From June 21, 2022, to September 30, 2024, NFRA has made significant strides in regulating the auditing profession in India. During this period, a total of 94 orders have been issued to auditors, reflecting both the frequency and severity of penalties imposed. The enforcement of these orders is indicative of NFRA’s commitment to uphold the highest standards in audit practices.
Yearly Breakdown of Debarments
In 2022, NFRA recorded a notably low number of debarments, with only 3 cases identified from June to December. This limited activity can be attributed to the availability of data starting in June 2022. However, a marked change occurred in 2023, which saw a dramatic increase to 48 debarments. This surge indicates heightened scrutiny and intensified enforcement efforts, possibly in response to rising compliance issues within the sector.
By 2024, the number of debarments remained substantial at 43 cases, signalling a slight stabilisation compared to the previous year. This trend may suggest improved compliance among auditors, reflecting an evolving regulatory environment.
Duration and Severity of Debarments
An analysis of the duration of debarments reveals that the most common penalty was a one-year debarment, affecting 25 auditors. This suggests that many violations were viewed as moderate, warranting corrective actions without necessitating longer penalties. Conversely, a notable eight auditors faced ten-year debarments, underscoring the seriousness of their infractions and NFRA’s commitment to holding violators accountable.
The majority of financial penalties imposed were set at Rs one lakh, with 31 instances recorded at this level. This indicates a standard infraction level faced by many auditors. However, higher penalties, including fines reaching Rs one crore, were imposed in a few severe cases, highlighting the presence of significant misconduct within the profession.
According to an NFRA officer, some orders, particularly those involving Deloitte and the IL&FS fraud, were stayed by court decisions, and further, due to the COVID-19 pandemic, NFRA had not issued much debarment orders in the initial four years. The website currently only reflects orders post-June 21, 2022. However, ETCFO has researched and gathered crucial orders issued by NFRA in its initial four years:
Udayen Sen, former CEO of Deloitte, was debarred for seven years in connection with the IL&FS fraud case.
Rukshad Daruwala and Shrenik Baid, both Deloitte partners, received five-year debarments related to the same case.
Auditor Jagdish Jham from Prabhu Steels was debarred for one year over professional misconduct.
Som Prakash Aggarwal, an auditor from Vikas WSP, faced a three-year debarment for similar violations.
Rajiv Bengali, a statutory auditor for Trilogic, received a one-year debarment for professional misconduct.
What Top Auditors of India Inc. Say at Six Years of NFRA
Sudhir Soni, Head of Audit, B S R & Co LLP, A KPMG Affiliate
“NFRA has taken significant steps towards strengthening audit quality through its orders and inspections. It has emphasised the importance of audit documentation to demonstrate compliance with auditing standards, which have the force of law and are not merely a set of principles. Additionally, there is a need to avoid conflicts of interest, both in spirit and perception. Audit firms and their networks are adopting strict policies on providing non-audit services to entities under NFRA supervision.”
We believe that NFRA’s actions and engagement with audit firms through inspections and conferences will provide clarity on their expectations. As these become clear, audit firms will be able to make necessary changes and adaptSudhir Soni, Head of Audit, B S R & Co LLP,
Vishesh C Chandiok, CEO, Grant Thornton Bharat
“There is pressure of reviews, particularly multiplicity of these for large firms—internal, global, PCAOB, peer review, and now NFRA. A regulator needs to be strict but should also show balance. While NFRA is working towards achieving such balance, I would request them to adopt a more remedial approach to help the profession enhance audit quality.”
The need for harmonization among various regulatory reviews is critical. It’s essential for the audit profession to feel supported in enhancing quality, rather than just facing sanctionsVishesh C Chandiok, CEO, Grant Thornton Bharat
“The past six years have been transformative for the audit profession with the establishment of NFRA. As a relatively young regulatory body, NFRA has made significant progress in improving the quality and oversight of audits in India. It has established itself as a key player in enhancing transparency, accountability, and integrity in financial reporting.
Looking ahead, NFRA must continue to engage closely with audit committees and boards, emphasizing their responsibilities in ensuring accurate financial reportingRajeev Saxena, Subject Matter Expert, S.N. Dhawan & Co. LLP
The Way Forward for NFRA
Looking ahead, several key areas for NFRA’s focus have been highlighted by auditors. Sudhir Soni emphasised the need for NFRA to strengthen its engagement with governance bodies, particularly audit committees and boards, stating that “increased interaction could significantly enhance the quality of financial reporting.
Rajeev Saxena noted the importance of fostering a culture of accountability among key managerial personnel and board members, stressing that “they must recognize their responsibility for maintaining accurate financial records and effective internal controls.
Vishesh C. Chandiok suggested that embracing technological advancements in auditing processes could improve efficiency and accuracy, stating that it could further elevate audit quality.
Chandiok advocated for adopting a more remedial approach to support auditors navigating the regulatory landscape, highlighting that such an approach would be vital for enhancing overall audit quality.
Soni pointed out that exploring settlement mechanisms could help avoid protracted litigation, allowing for quicker resolutions and creating a more constructive environment for compliance. By focusing on these areas, NFRA can continue to strengthen India’s financial reporting ecosystem and uphold investor trust.
