National Financial
Reporting Authority
7th Floor,
Hindustan Times House
Kasturba Gandhi Marg, New Delhi
NF-22/52/2025-NFRA
Date: 16 December 2025
Circular
To
All Statutory Auditors of Public Interest Entities (PIEs) covered under Rule 3
of NFRA Rules, 2018
Sub: Maintenance, archival and submission of Audit File to National Financial Reporting Authority (NFRA) – reg.
In the course of
performing its statutory functions, NFRA requires the audit firm¹ to provide
audit files as evidence of the work done by the audit firm in respect of
specific audit engagements. During the course of performance of its monitoring,
enforcement and oversight activities, NFRA has observed certain deficiencies in
the audit firms’ submission of audit files to NFRA, and their compliance with
the requirements of maintenance and archival of audit files as per Standards on
Auditing (SAs) and Standard on Quality Control (SQC) 1.
2. The Standards on Auditing (SAs)² including the
Standard on Quality Control (SQC) 1 define and provide guidance as to what
constitutes an audit file and its evidentiary value in respect of the audit
process undertaken by an auditor in support of his audit opinion/report.
Accordingly, audit firms are required to design policy, procedures and controls
around maintaining the sanctity of audit files, ensuring their completeness and
timely archival, including controls around authorised access to archived files.
3. Paragraph 6 (b) of SA 230 defines an Audit
File as “One or more folders or other storage media, in physical or electronic
form, containing the records that comprise the audit documentation for a
specific engagement”. Paragraphs 2, 3 and 5 of SA 230 describe the nature and
purposes of audit documentation, and the objectives of the auditor to prepare
documentation as: (a) sufficient and appropriate record of the basis for the
auditor’s report; and (b) evidence that the audit was planned and performed in accordance
with the SAs and applicable legal and regulatory requirements. Paragraph 6
defines audit documentation (terms such as “working papers” or “workpapers” are
also sometimes used), as the record of audit procedures performed, relevant
audit evidence obtained, and conclusions the auditor reached.
4. Paragraph 13(b) of SA 200 and Paragraph 5 in
SA 500 defines audit evidence as the information used by the auditor in
arriving at the conclusions on which the auditor’s opinion was based.
5. Paragraphs 8 and 10 of SA 230 require
mandatory documentation of the nature and extent of the audit procedures
performed, the audit evidence obtained, significant professional judgments, and
the discussions of important matters with management, those charged with
governance, and others.
6. The SAs also provide that the audit file has
to be assembled by an auditor and archived in a specific timeframe to establish
integrity of the audit process. In support, paragraphs 14 and 15 of SA 230
require the mandatory assembly of the final audit file after the date of the
audit report on a timely basis and its mandatory retention for the specified
period.
7. Paragraph 75 of SQC 1 Engagement
Documentation: Completion of the Assembly of Final Engagement Files
stipulates the need to complete the assembly of final engagement files on a
timely basis after the engagement reports have been finalised. In the case of
an audit, such a time limit is ordinarily not more than 60 days after the date
of the auditor’s report (also refer paragraph A21 of SA 230).
8. The retention of audit documentation is
provided for in paragraphs 82 and 83 of SQC 1. These provisions state that the
firm should establish policies and procedures for the retention of engagement
documentation for a period sufficient to meet the needs of the firm or as
required by law or regulation. The retention period may also depend on other
factors, such as whether local law or regulation prescribes specific retention
periods for certain types of engagements, or whether there are generally
accepted retention periods in the jurisdiction in the absence of specific legal
or regulatory requirements. In the specific case of audit engagements, the
retention period ordinarily is no shorter than seven years from the date of the
auditor’s report, or, if later, the date of the group auditor’s report (also
refer paragraph A23 of SA230).
9. Paragraph 85 of SQC 1 deals with ownership of
engagement documentation and states that unless otherwise specified by law or
regulation, engagement documentation is the property of the firm.
10. Paragraph 77 of SQC 1 requires the firm
establish policies and procedures designed to maintain the confidentiality,
safe custody, integrity, accessibility and retrievability of engagement
documentation. Paragraph 79 of SQC 1 goes on to caution that integrity,
accessibility or retrievability of the underlying data may be compromised if
the documentation could be altered, added to or deleted without the firm’s
knowledge, or if it could be permanently lost or damaged, irrespective of
whether engagement documentation is in paper, electronic or other media.
“For practical
reasons, original paper documentation may be electronically scanned for
inclusion in engagement files. In that case, the firm implements appropriate
procedures requiring engagement teams to:
(a) Generate scanned copies that reflect the entire content of the original
paper documentation, including manual signatures, cross-references and
annotations;
(b) Integrate the scanned copies into the engagement files, including indexing
and signing off on the scanned copies as necessary; and
(c) Enable the scanned copies to be retrieved and printed as necessary.
The firm considers
whether to retain original paper documentation that has been scanned for legal,
regulatory or other reasons.”
(emphasis supplied)
12. In view of the requirements in the
professional standards outlined above, it is mandatory that audit documentation
is completed contemporaneously by the audit firms and archived within the
specified timeframe. Therefore, audit firms require only a short period of time
for submitting the audit files to NFRA, when required. Based on NFRA’s
oversight and monitoring activities, in several matters it has been observed
that some auditors of entities falling under Rule 3 of the NFRA Rules 2018 i.e.
Public Interest Entities (PIEs), sometimes seek an unreasonable extension of
time for submitting audit files to NFRA. While in the interest of natural
justice, such extensions have been granted time and again, the elongated
timelines sought by audit firms affects the overall timely consideration of the
matter at NFRA.
13. Such extensions have, it appears, also been
utilised in a few observed instances to convert physical files to electronic
formats or vice versa, before sending the files to NFRA and even for
preparation of fresh/additional audit documentation (after the expiry of
prescribed timeline for assembly and archival of audit files) solely for
submission to NFRA.
Instances of loss of data and loss of integrity of audit files
14. The conversion of file formats, as mentioned
above, have sometimes been done in a manner that impacts the integrity of the
audit files submitted to NFRA. For instance, practices such as printing the
original electronic documents and then scanning these to create unsearchable
PDFs for sending to NFRA, or any alterations or additions to original audit
documentation (in physical or electronic form) in respect of an audit
engagement, are violative of the requirements in the SAs and SQC 1.
16. Audit files constitute audit evidence. In
certain instances, it has been observed that auditors have taken recourse to
the suggested seven year period provided in the SQC 1 as the final period upto
which they are required to retain the audit file/audit documentation, even when
the matter is under regulatory scrutiny or under challenge in Courts.
17. Preservation of evidence is not just the
requirement of SQC 1 or Standards of Auditing. Preservation of any document or
electronic record which a person may be lawfully compelled to produce as
evidence in a Court or in any proceeding lawfully held before a public servant
is protected in law from obliteration or being rendered illegible, where done
with the intention of preventing the same from being produced or used as
evidence before such Court or public servant or after he is required to produce
the same for any proceeding that may have been instituted. Therefore, in cases
where any legal/regulatory proceedings have been instituted by any court or
authority, the audit files are to be retained even beyond the timelines
prescribed under SQC-1 or Standards of Auditing.
18. Audit firms should establish adequate policy,
procedures and controls over audit files as required by the professional
standards and keep in mind all the relevant Indian laws and regulations
including Information Technology Acts/Rules/Regulations. Accordingly, their
policy and procedures should address aspects of maintenance, archival and
retention of audit files.
19. Final audit files are required to be assembled
and archived within the prescribed time limit in SA 230 & SQC 1 i.e., time
limit for assembly of final audit files shall not ordinarily be more than 60
days after the date of the auditor’s report. Accordingly, the audit firms
should be able to send the audit files to NFRA within short notice, as NFRA’s
requests are ordinarily after substantial time gap from the expiry of 60 day
time limit mentioned above.
20. While the audit firm’s policy on retention
period for audit engagements shall not be ordinarily less than 7 years from the
date of the auditor’s report, the policy must include retention beyond this 7
years period in certain circumstances such as when the audit client is
subjected to certain enquiry/actions by oversight/investigative agencies.
22. Audit firms may note that any original audit
documentation or parts of the original audit documentation which has been
subjected to some format conversion before sending the file to NFRA or when
printing some electronic form of work papers (e.g. MS-Excel Worksheets) for
inclusion in the audit files maintained in paper form, do not fulfil relevant
requirements of SAs and SQC 1 and cannot constitute valid audit evidence since
they do not ensure authenticity, nature and timing of the audit procedures performed
by the auditor.
23. Audit firms are required to note that audit
files requisitioned by NFRA are required to be submitted to NFRA in complete
form and prescribed manner within 7 days of receipt of the communication from
NFRA to submit the Audit Files.
24. In exceptional circumstances, if extensions
are necessitated, any request for extension of time needs to be made within 7
days of receipt of the communication from NFRA. Such requests should be
accompanied with all the requisite details below:
(a) Description of the exceptional circumstances warranting the extension, and
documentary proof substantiating the circumstances.
(b) Total number of pages of paper audit file or paper documents that form part
of the audit file, and/or total volume of electronic audit file in MBs.
(c) The index page of the paper audit file and/or logical listing of the
electronic audit documentation, showing the list of documents contained in the
electronic audit file.
(d) Notwithstanding requirements to send the audit files in complete form as
requisitioned by NFRA, advance copies of Audit Strategy and Audit Plan
(Paragraph 11 of SA 300³), Risk assessment summary (Paragraph 32 of SA 315⁴),
Summary of Corrected and Uncorrected Audit Misstatements (Paragraph 15 of SA
450⁵) and Copies of all communications with Audit Committee or Board (Paragraph
23, SA 260⁶ (revised)) and Paragraphs 10 and 11 of SA 265), as available in the
Audit File, are required to be sent with the extension request.
Authorised for
issue by the Executive Body, NFRA.
(Signed)
Vidhu Sood
Secretary
- Secretary, Ministry of Corporate Affairs,
Government of India
- Governor, Reserve Bank of India
- Chairperson, Securities and Exchange Board
of India
- Chairperson, Insurance Regulatory and
Development Authority of India
- Director General of Corporate Affairs,
Ministry of Corporate Affairs, Government of India
- Director General (Commercial-II), O/o CAG
of India
- Chairman, BSE
- MD & CEO, National Stock Exchange
- President, The Institute of Chartered
Accountants of India
- President, The Institute of Company
Secretaries of India
- Director General, Confederation of Indian
Industry (CII)
- Director General, Federation of Indian
Chamber of Commerce and Industry (FICCI)
- Secretary General, The Associated Chambers
of Commerce and Industry of India (ASSOCHAM)
- Secretary General, PHD Chamber of Commerce
and Industry (PHDCCI)
- Director, The CFO Board
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https://mytaxexpert.co.in/uploads/1767927211_CircularOfNFRAoncommunicationwithTCWG.pdf
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CA. NITIN GARG
Are Statutory Bank Branch Auditors covered under Public Interest Entities (PIEs) covered under Rule 3 of NFRA Rules, 2018, as above?