The National Financial Reporting Authority (NFRA), in exercise of its powers under the NFRA Rules, has issued a detailed circular mandating the preparation, maintenance, and submission of Audit Files for audits of Public Interest Entities (PIEs). The initiative is aimed at strengthening audit quality, improving regulatory oversight, and ensuring consistency with Standards on Auditing (SAs). The circular reflects NFRA’s continued focus on audit discipline, transparency, and enforceable accountability.

Key Provisions / Developments / Highlights

• Statutory auditors of Public Interest Entities are required to prepare a complete Audit File for each audit engagement.
• The Audit File must comprehensively document audit planning, risk assessment, execution, supervision, review, and conclusions in accordance with applicable Standards on Auditing.
• Clear timelines are prescribed for finalisation and assembly of the Audit File after the audit report date.
• NFRA is empowered to call for and examine Audit Files as part of its monitoring, inspection, or enforcement functions.
• The circular clarifies expectations around documentation quality, sufficiency, and retention to ensure audit evidence supports the auditor’s opinion.

Practical Implications for Businesses / Professionals

• Audit firms must revisit and strengthen their audit documentation frameworks, workflows, and quality control mechanisms.
• Engagement teams need to ensure that audit judgments, significant matters, and conclusions are clearly recorded and internally reviewed.
• Firms may need to enhance internal training, supervision protocols, and file assembly controls to meet NFRA expectations.
• Public Interest Entities may experience increased audit discipline, deeper documentation requests, and more structured audit interactions.

Compliance, Risk, or Governance Impact

• Non-compliance with audit file requirements can expose auditors to regulatory scrutiny, disciplinary action, and reputational risk.
• Robust audit documentation improves governance outcomes by enabling effective regulatory review and enforcement.
• The circular reinforces the principle that audit quality is inseparable from demonstrable, well-documented professional judgment.
• It also aligns Indian audit oversight with global best practices on audit supervision and regulatory inspection.

Action Points / Key Takeaways

• Audit firms should immediately assess gaps between existing documentation practices and NFRA requirements.
• Standardised audit file structures, checklists, and review protocols should be implemented or updated.
• Engagement partners must exercise heightened oversight over audit documentation quality and completeness.
• Firms should be prepared for regulatory examination of audit files and ensure timely, accurate, and secure record retention.