Enhancing Audit Quality | Key Insights from the NFRA Staff Series on Overall Audit Strategy

1. Introduction

The National Financial Reporting Authority (NFRA) is an independent regulatory body established by the Government of India (GoI) to oversee and enforce compliance with accounting and auditing standards. Beyond this regulatory requirement, NFRA is also responsible for improving the audit quality. As part of its continuous efforts to enhance audit quality, NFRA has commenced publishing “NFRA Staff Series“, wherein it provides insights, analysis, and practical guidance on critical aspects of accounting, auditing, and financial reporting.

In its recent publication under the NFRA staff series, they have issued an “Audit Practice Toolkit,” which serves as a comprehensive practical guide to assist auditors in planning and performing audits in accordance with the Standards on Auditing (SAs). The toolkit issued on November 4, 2025, discusses the practical aspects of “audit strategy” in accordance with SA 300, Planning and Audit of Financial Statements.

This article discusses the practical guidance on planning meetings with the client and engagement team, an overview of the business and industry environment, overall analysis review of financial performance, an overview of internal control systems including IT platforms, involvement of internal auditor, information systems auditor & other experts, and materiality determination in accordance with the audit practice toolkit issued by NFRA.

2. Planning Meetings with the Client and Engagement Team

The document relating to planning meetings with the client and engagement team shall include the date on which the meeting is held, along with the details of the engagement partner, engagement quality control reviewer, team members, and the auditor’s experts. The document shall also include the details along with the designation of the members of the client with whom such a meeting is held.

The engagement manager who has managed the audit of the entity in the prior period shall share the knowledge regarding the understanding of the entity’s organisational structure, ownership, and governance, business model, economic environment, operations, and key staff, including the significant changes since the prior years. The engagement manager shall also inform the team about information obtained during the acceptance and continuance process from other engagements that is of significance to either planning or performing the audit engagement. Furthermore, they shall also document the materiality, performance materiality, and clearly trivial transactions.

The engagement quality control reviewer shall discuss the significant judgments and their involvement in the direction and supervision of the review of financial statements, audit report, and communication done with those charged with governance. The engagement team shall also document the timeliness of the interim audit and year-end audit.

3. Overview of Business and Industry Environment

The engagement team shall document their overall understanding of the business and the industry environment in which the client operates. While documenting this, the team shall focus on significant market changes, macro-economic conditions, competition (if any), technological developments, market position of the entity, compliance with laws and regulations, and other industry-specificrisks.

4. Overall Analysis and Review of Financial Performance

The engagement team shall review the annual reports, quarterly financial results, and the internal MIS system to prepare an overall analysis of the financial performance. This analysis helps the entity to identify high-risk areas, detect anomalies, and assess trends before fieldwork. The key financial data that should be analysed includes revenue, cost of material consumed, intangible assets, property, plant and equipment, and any other item with significant variations. The engagement team shall also analyse the key financial ratios such as debt-equity ratio, inventory turnover ratio, debtor turnover ratio, and any other ratio with significant variation.

It is hereby important to note that the aforesaid analysis and review of financial performance shall be done separately for the separate financial statements and consolidated financial statements.

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