The National Financial Reporting Authority (NFRA) has highlighted gaps in the implementation of auditing standard SA 260, which governs communication between statutory auditors and those charged with governance, including audit committees. The concerns centre on whether auditors are communicating significant audit matters effectively, escalating issues in time and maintaining adequate documentation, rather than treating compliance as a procedural checklist.
The issues were discussed at NFRA’s webinar on communication with those charged with governance under SA 260, against the backdrop of the regulator’s January 2026 circular on effective communication between statutory auditors and audit committees.
Documentation alone does not establish effective communication
The discussions highlighted that the presence of a communication record in an audit file does not, by itself, establish that the auditor has met the standard’s underlying objective.
A typical audit file may record that the audit plan was presented to those charged with governance, but a ticked checklist without supporting evidence may not demonstrate the substance of the discussion.
Professor Sanjay Kalapur, professor of accounting at the Indian School of Business and a part-time NFRA member, emphasised the distinction between maintaining records and demonstrating meaningful communication.
“The documentation is necessary but not sufficient,” Kalapur said.
The broader concern is whether audit documentation captures substantive exchanges, significant matters raised, responses received and the follow-up undertaken by auditors and audit committees.
Delayed escalation can limit audit committee scrutiny
The discussion also highlighted the risk of significant audit matters reaching audit committees too late for meaningful scrutiny.
Himanshu Krishnad Bala, founder and principal partner of CNK and Associates LLP, discussed challenges arising when management delays information or when auditors need to assess complex matters such as revenue recognition and impairment assessments involving subsidiaries or related parties.
Where significant judgements or valuation assumptions are involved, timely escalation gives audit committees an opportunity to question management, seek further evidence and, where warranted, consider independent assessments.
Effective communication therefore requires more than placing matters before the committee. Auditors need to bring significant issues to its attention in sufficient time for the committee to examine them and respond.
Direct auditor access to audit committees remains important
The discussion also underscored the importance of direct engagement between statutory auditors and audit committees, without management necessarily being present throughout the interaction.
Anita Kapoor, former chairperson of the Central Board of Direct Taxes and an independent director, highlighted the value of directors meeting auditors without the chief financial officer or other members of management present. Such interactions can provide an opportunity to raise concerns and understand the auditor’s assessment independently.
Kalapur also highlighted the usefulness of open-ended questions in encouraging a more substantive exchange rather than limiting discussions to formal presentations and routine confirmations.
Time constraints and expertise can weaken oversight
The effectiveness of audit committee oversight also depends on members having the expertise and time required to examine complex financial reporting judgements.
Kapoor raised concerns about accounting expertise on boards and audit committees, while Bala highlighted instances in which auditors may have only 15 minutes to present their findings.
Limited time can constrain the committee’s ability to examine significant matters, question management’s judgements and understand the implications of audit findings. The discussion pointed to the need for sufficient time and meaningful engagement rather than treating the auditor’s presentation as a procedural item.
Kalapur also highlighted the importance of audit committees in the selection and evaluation of auditors. Kapoor suggested that full boards meet statutory auditors annually.
Auditor independence requires substantive assessment
The discussion further highlighted the need to assess auditor independence beyond formal declarations.
Kapoor said the assessment should consider factors such as non-audit services, previous relationships and the auditor’s experience in the relevant industry. Bala highlighted the importance of disclosing permitted services provided by the audit firm and its network.
Such scrutiny is important to help audit committees assess whether relationships or other services could create threats to the auditor’s independence, and whether appropriate safeguards are in place.
Focus shifts from formal compliance to meaningful engagement
NFRA’s January 2026 circular on communication between statutory auditors and those charged with governance, including audit committees, sets the regulatory context for the discussion.
The central issue is whether auditors and audit committees are engaging in timely, two-way communication on significant audit matters, supported by appropriate documentation and follow-up.
For audit committees, this means examining whether important issues have been escalated early enough, whether management’s responses have been challenged and whether auditors have had adequate opportunity to communicate their findings. For auditors, it means demonstrating not only that communication took place, but also that it was substantive and consistent with the requirements of SA 260.
