Be harsh when you see serious fudging, NFRA tells auditors

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how to handle some of the failings in financial statements, and asking them to stay alert, display professional scepticism, and question unsubstantiated assertions of company managements. In June, the regulator clarified that quitting an audit assignment does not absolve a statutory auditor of the responsibility to report fraud noticed during the audit, and that absence of audit documentation and failure to submit audit files to the regulator is clear evidence that the audit is unreliable and invalid.

Through other disciplinary orders, NFRA has also clarified that negotiations with banks and non-bank lenders for restructuring loans do not absolve a company from its liability to recognize interest cost in financial statements. The disciplinary orders have also made auditors more proactive in flagging lapses in the audit reports and in some cases, resign from the audit engagement.