Anuja Singh Parihar
NFRA’s TCWG & Auditors Two-Way Communication Sounds Simple – However, Most Governance Structures Are Still Evolving to Achieve It
When the National Financial Reporting Authority (NFRA) issued its circular on January 07, 2026 regarding communication between statutory auditors and Those Charged with Governance (TCWG), it did not introduce a new law. It did something more subtle, perhaps more disruptive. It forced companies to confront how poorly an existing requirement was being implemented. The circular applies to the companies and auditors of listed companies and large unlisted public companies meeting thresholds of ₹500 crore paid-up capital, ₹1,000 crore turnover or ₹500 crore outstanding borrowings, as well as regulated sectors such as banking, insurance and power and certain foreign subsidiaries/associates.
On paper, the framework is not new. The expectations already exist within the Companies Act, 2013 and the Standards on Auditing, particularly SA 260 (Revised) and SA 265. Yet, NFRA’s findings make it clear that in practice, communication had often devolved into a formality. Interactions between auditors and audit committees were frequently reduced to presentations held shortly before the approval of financial statements, with limited documentation, minimal deliberation and little evidence of meaningful engagement. In some instances, discussions with management were incorrectly treated as communication with TCWG and critical matters such as significant risks, unusual transactions or internal control deficiencies were not escalated appropriately.
What makes the circular operationally significant is that it does not stop at principles, it implicitly requires companies to institutionalise a structured communication framework. In practical terms, organisations are now expected to formally identify TCWG (typically, the Board or Audit Committee), designate nodal points for interaction and establish a documented communication protocol with auditors. The circular also envisages at least two structured interactions during the audit cycle, one at the beginning of the financial year to discuss audit planning, scope, materiality and risk areas and another meeting to deliberate on audit findings, internal control observations and significant concerns. In addition, the agenda for such interactions is no longer left open-ended, it is expected to cover defined areas such as audit strategy, risk assessment, internal controls, accounting estimates, auditor independence and significant transactions.
This has created a palpable tension in boardrooms. Directors are now expected to operate at a level of technical engagement that goes beyond traditional oversight. The expectation is no longer to review outcomes. This implies higher personal accountability and a deeper involvement in audit related matters. It is not surprising, therefore, that the circular is increasingly being viewed as a governance wake-up call.
The circular attempts to reinforce a core expectation and demands that auditors and boards move away from a model where one presents and the other passively receives, towards a dynamic where both engage, questions, respond and challenge each other.
This also brings us to a more nuanced and less openly discussed debate. NFRA, as a regulator, has jurisdiction over auditors. Yet, through this circular, it has placed clear expectations on TCWG, including the Board and Audit Committee. It recommends the establishment of formal communication frameworks, identification of nodal persons, defined meeting structures and documented responses from TCWG. While these expectations are rooted in existing legal provisions, their articulation raises a legitimate question: is NFRA indirectly regulating boards, or is it simply enforcing a stricter interpretation of the law? This remains a subtle but significant governance debate.
The real question, therefore, is not whether companies will comply with the circular. Compliance is inevitable. The question is whether Indian entities are prepared for a transition from reviewing audits to actively participating in them. Because two-way communication, while simple in articulation, demands a level of engagement that most governance structures are still evolving to achieve.
Disclaimer:
The views expressed in this article are personal and based on the author’s interpretation of the applicable regulatory framework. They are intended for general informational purposes only and do not constitute professional advice.
