Lok Sabha Question No. 2684 (UNSTARRED), answered on 2026-03-09
Subject: Revenue Recognition Risks Identified by NFRA
Ministry: CORPORATE AFFAIRS
Asked by: Shri Sasikanth Senthil

## GOVERNMENT OF INDIA MINISTRY OF CORPORATE AFFAIRS LOK SABHA

## UNSTARRED QUESTION NO. 2684

ANSWERED ON MONDAY, MARCH 09, 2026/ 18 PHALGUNA, 1947 (SAKA)

Revenue Recognition Risk Identified by NFRA

## QUESTION

2684.  Shri Sasikanth Senthil:

Will the Minister of CORPORATE AFFAIRS be pleased to state:

- (a) whether the Government has taken note of observations made by the National Financial Reporting Authority (NFRA) that revenue recognition continues to be a high-risk area for material misstatement in statutory audits, if so, the details thereof;
- (b) the number of audit inspections conducted by NFRA during the last three years  in  which  deficiencies  relating  to  revenue  recognition  were observed and the steps taken to address such deficiencies;
- (c) the  measure  taken  by  the  Government  and  NFRA  to  strengthen compliance with Standards on Auditing, including SA 240 and SA 315, and to improve audit quality in respect of revenue recognition; and
- (d) the  impact  of  such  audit  deficiencies  on  corporate  governance, investor confidence and the overall ease of doing business in the country?

## ANSWER

MINISTER  OF  STATE  IN  THE  MINISTRY  OF  CORPORATE  AFFAIRS  AND MINISTER  OF  STATE  IN  THE  MINISTRY  OF  ROAD  TRANSPORT  AND HIGHWAYS.

(SHRI HARSH MALHOTRA)

- (a) & (b) National Financial Reporting Authority (NFRA) is aligned with the international standards. Steps are taken by the Government to keep the Accounting Standards, including those that have a bearing on  revenue  recognition,  updated  and  aligned  with  international standards.  12 Audit Quality Inspections have been undertaken by NFRA during the last three years, of which deficiencies related to revenue recognition were observed in 6 firms. Firms were asked to remediate the deficiencies in the audit and follow up on remedial actions has been taken during subsequent inspections. Inspections reports are also published to enable wider learning of the issues. Further, a series of workshops and webinars have been organized to educate the professionals.
- (c) The measures undertaken to strengthen compliance with Standards on Auditing, including SA 240 and SA 315, and to improve audit quality in respect of revenue recognition are at Annexure.
- (d) Audit deficiencies may lead to audit/corporate failures, which may result  in  adverse  impact  on  corporate  governance  and  investor confidence. Audit Quality inspections are intended to identify areas and  opportunities  for  improvement  in  the  audit  firm's  system  of quality  control  and  in  their  planning,  conduct  and  reporting  of audits. Inspection work provides an opportunity for an audit firm to improve auditing procedures and remediate lapses. The publication of  the  inspection  reports  enables  dissemination  amongst  the stakeholders,  facilitating  improvement  in  corporate  governance practices including financial integrity of financial statements. This in turn leads to enhancement in investor confidence and contributes  to  building  a  stronger  ecosystem  of  trust  among stakeholders and supports the broader objective of enhancing the ease of doing business in India.

****

## Annexure

- (i) Auditing  Standards:  A  set  of  40  revised  high-quality globally comparable & updated Standards on Auditing including SA 315, 240, Standard on Group Audits and Standards on Quality Management has been recommended by NFRA, which are under consideration of the Ministry
- (ii) 12 audit quality inspection reports have been published on NFRA website.
- (iii) NFRA has issued 94 disciplinary orders, out of these 79 orders are published, and 15 orders are not published due to court directions. The published orders act as a major deterrent by  highlighting  the  consequences  of  audit  lapses  thereby sensitising the audit profession regarding their responsibility in law  and  accounting  and  auditing  standards.  Learnings  from NFRA orders has been published by the profession itself.
- (iv) NFRA has also undertaken several initiatives to support better  audit  quality  practices.  NFRA  has  commenced  issuing Audit-Practice Toolkits to enhance awareness and audit quality.
- (v) NFRA has also issued circulars, reiterating provisions in law and standards, with a view to prevent recurrence of noncompliances and bring in systemic improvement in the quality of  financial  reporting  in  India,  towards  advising  and  guiding various stakeholders.
- (vi) In  2025-26,  NFRA  also  launched  a  series  of  outreach programmes  across  the  country  to  deepen  engagement  with audit firms towards supporting audit quality, especially focussed upon small and medium sized audit firms. Four such outreach  programmes  have  been  held  in  Hyderabad,  Indore, Bangalore and Kolkata.
- (vii) Continuing  its  practices  for  education  on  audit  areas, NFRA  periodically  organised  webinar  series  with  assistance from experts and professionals. NFRA also held webinar on SA 315.