The National Financial Reporting Authority (NFRA) has introduced new inspection guidelines that will require audit firms to address deficiencies within a fixed timeframe, tightening oversight of the profession.
Under the new framework, firms will have to submit remediation plans within three months of deficiencies being identified and complete corrective measures within six months, according to two people familiar with the development.
The country’s six largest audit firms will again undergo quality inspections in 2026-27 (FY27). Four smaller audit firms are also expected to come under review.
Firms slated for FY27 inspections
The firms scheduled for quality inspections include:
- Deloitte Haskins & Sells and affiliates
- SRBC & Co LLP
- Price Waterhouse & Affiliates’ (PW&A) Network
- BSR Affiliates Network
- MSKA & Associates LLP
- Walker Chandiok & Co LLP
These six firms were also inspected in FY26.
The new guidelines encourage audit firms to share NFRA inspection reports with the audit committees of client companies.
According to one of the people cited above, this would allow companies to assess the functioning of their auditors and decide whether reappointment would be appropriate.
NFRA inspection reports highlight shortcomings in areas such as:
- Auditor independence.
- Documentation requirements.
- Compliance with quality standards.
The reports do not amount to disciplinary action against firms or their partners. Instead, they seek to improve industry practices and strengthen accountability.
Focus areas of inspections
Inspections concentrate on audit areas that could materially affect financial statements.
In FY26, NFRA focused on:
- Revenue recognition.
- Loans and advances.
- Company-specific issues.
Strengthening the credibility of financial statements remains a priority as India seeks to enhance investor confidence.
MSKA says remediation plan ready
Vishal Divadkar, Managing Partner and Head of Audit & Assurance at MSKA & Associates, said the firm had finalised its remediation plan under the April 2026 inspection guidelines.
“The plan has been duly prepared and will be submitted within the stipulated timelines. We remain fully committed to continually investing in strengthening our quality control framework,” Divadkar said in a written response to queries from Business Standard.
He said the firm had already addressed observations from earlier inspections, including those related to:
- Governance and leadership documentation.
- Independence policies.
- Client acceptance procedures.
- Audit documentation in selected areas.
“We have also taken note of NFRA’s observations from the recently concluded inspection and are actively addressing the suggested modifications. Our teams are already implementing the necessary improvements, and we remain firmly committed to upholding the highest standards of audit quality,” he added.
Walker Chandiok cites ongoing engagement
A spokesperson for Walker Chandiok & Co LLP said the firm acknowledged the NFRA Inspection Report 2024, released on March 27, 2026, and remained committed to audit quality, independence and public interest.
“The firm has consistently maintained strong policies and remains fully compliant with applicable standards. No audit opinions issued by the firm have been questioned, and we remain dedicated to continuous improvement and constructive engagement with regulators to strengthen confidence in India’s audit ecosystem,” the spokesperson said.
The spokesperson added that the firm had prepared a comprehensive remediation plan and was implementing it within timelines prescribed by NFRA.
Walker Chandiok also said it remained engaged with clients and their audit committees on issues arising from the inspection process.
Divadkar said MSKA had shared previous inspection findings with audit committees wherever such information was sought.
“Transparency with our audit committees remains a priority for us,” he said.
Timeline shorter than US regulator
Two senior audit industry executives, who declined to be identified, said their firms would submit remediation plans after FY27 inspections if required, describing the requirement as prospective.
According to one of the people familiar with the matter, NFRA’s approach is broadly aligned with international practices.
However, the US Public Company Accounting Oversight Board (PCAOB) allows firms 12 months to complete remediation, compared with six months under the Indian framework.
Separate divisions created
In April, NFRA reorganised its operations by separating four functions into independent divisions:
- Oversight.
- Investigation.
- Referral of cases for disciplinary action.
- Adjudication of disciplinary matters.
Each division is headed by a separate member. The move is aimed at preventing legal challenges to disciplinary orders.
Earlier observations
Previous NFRA inspection reports had highlighted different issues across firms.
Among them:
- Deloitte: Non-audit services.
- Walker Chandiok: Independence requirements and the definition of “connected persons”.
- PW&A: Human resource policy and independence of certain partners.
- SRBC: Monitoring of non-audit services.
Queries sent to Deloitte Haskins & Sells, SRBC, PW&A, BSR Affiliates Network, and NFRA had not received responses at the time of publication.
TL;DR:
NFRA has introduced stricter inspection rules requiring audit firms to submit remediation plans within three months and implement corrective measures within six months. The top six audit firms will again face quality inspections in FY27.
AI summary:
- NFRA has tightened audit inspection rules.
- Firms must submit remediation plans within three months.
- Corrective measures must be completed within six months.
- Top six audit firms will undergo inspections in FY27.
- Audit firms are being encouraged to share inspection reports with client audit committees.
