Duties Under NFRA Circular Dated 7 January 2026: Responsibilities of Statutory Auditors and TCWG
| Responsibility | Duties to be performed |
| Two meeting in a year | Auditors and Those Charged With Governance (TCWG) should meet in person or virtually at least twice a year, one before audit commencement (audit strategy, scope, materiality, risks, etc.) and another before approval of financial statements (significant findings and concerns). |
| Statutory Auditors |
As per SA 260 Para 11, Auditor shall determine and document TCWG at the start of the Audit. Generally BOD is the primary TCWG, sub-groups (AC) may also be included but auditors must assess whether the full Board should also be communicated with. Once TCWG is determined, the Standards require regular, two-way communication with TCWG throughout the Audit. Communicating with management / ED does not satisfy TCWG requirements.
As per SA 260 Para A37 TO A53 and appendix 2, Documentation of any matters communicated orally in |
| the manner prescribed therein is required. It is observed that expected communications from TCWG about significant strategic decisions, suspected or identified fraud and views regarding the integrity and competence of senior management is not documented. Informal discussions, presentations or engagement letters alone are not sufficient; all significant events must be recorded and retained as part of audit documentation.
As per SA 265, Significant deficiencies in internal control need to be communicated in writing and in a timely manner with both TCWG and Management and such deficiencies must explain their potential effects. Policies and processes are needed to implement these requirements in practice in letter & spirit. Statutory auditors must communicate with TCWG on matters such as:
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| Common non- compliance by auditors observed by NFRA | In several instances, communications to the Audit Committee (which the Auditors treated as TCWG) were limited to a presentation shortly before approval of the financial statements, without adequate supporting documentation of discussions of significant matters or of actions arising from Audit Committee deliberation.
Significant unusual transactions, including supplier and land advances, borrowing and lending transactions, and circuitous dealings with promoter or group‑controlled entities outside the normal course of business, were not communicated to TCWG or the Audit Committee, which is contrary to the requirements of the Standards. Instances of non-compliance with laws and regulations, including prudential and regulatory requirements that could affect the entity’s license to operate, were not communicated. Often, there was no communication of deficiencies in the entity’s related party transaction policy and issues in related party transactions, such as significant increases, questions as to whether they were in the ordinary course of business, or whether they were at arm’s length. Despite the requirement of the Law and the Standards on both the Audit Committee and the Auditor, regarding internal controls, in one case, the Auditors failed to communicate identified weaknesses or the absence of internal controls to TCWG, including serious deficiencies in credit policies and the failure of the Risk Management Committee to meet over multiple years. |
| BOD /AC/TCWG | Timely information on how the audit is planned, what are the areas of key risks, and whether Auditors are truly independent, enables TCWG to ensure uncompromising objectivity of Auditors. |
Standard on Auditing (SA), 260, Communication with Those Charged with Governance
Standard on Auditing (SA), 265, Communicating Deficiencies in Internal Control to Those Charged with Governance and Management
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