Accounting Advisory

Research report | 8-10 Min Read The National Financial Reporting Authority has moved from a reactive enforcement body into something closer to an active quality regulator. Inspection volume is rising, findings are getting more granular, and NFRA is now testing AI tools to support its own review process. For audit firms and the audit committees that rely on them, understanding what NFRA is actually finding matters more than understanding that NFRA exists. This report reviews recent NFRA inspection findings and outreach activity through 2026 to identify the recurring gaps in Indian audit practice and what they signal for audit firms, boards, and finance leaders preparing for their next inspection cycle. What Is an NFRA Inspection? NFRA inspections are structured reviews of how an audit firm actually performs its work, not just what its policies say. Inspectors check whether the firm follows auditing standards, maintains genuine independence from the client, applies proper quality control procedures, and can produce documentation that supports the judgments made during the audit. Inspection reports are made public, which means findings function as both enforcement outcomes and a public signal to the rest of the audit profession about where scrutiny is concentrated. NFRA has stated it will complete inspections of ten audit firms in FY26, the highest annual figure in the regulator's history, alongside a series of city-based outreach programs launched from September 2025 to engage smaller and mid-tier firms directly rather than waiting for inspection findings to force the conversation. What Recent Inspections Reveal Across recent public NFRA inspection reports, a consistent set of themes recurs regardless of firm size: Auditor independence gaps, particularly around cross-network service provisions and undisclosed relationships between auditors and clients. Independence policy manuals that are not updated between inspection cycles remain a repeated finding. Related party transaction (RPT) documentation weaknesses, including insufficient verification of RPT disclosures and inadequate arm's length price testing. Revenue recognition deficiencies, where audit evidence does not sufficiently support the judgments applied to complex or unusual revenue arrangements. Internal financial control gaps, especially concerning controls over revenue, related party transactions, and impairment of non-financial assets. Documentation and evidence chain weaknesses, where audit files lack the contemporaneous, unambiguous evidence needed to demonstrate that professional scepticism was actually applied, not just procedurally recorded. From Reactive Enforcement to Proactive Oversight NFRA's historical approach centred on issuing inspection reports after the fact, flagging shortcomings, and applying penalties or sanctions where warranted. That model is shifting. NFRA's outreach programs, starting in Hyderabad and Indore, signal a deliberate move toward engaging firms before problems surface in an inspection, without reducing enforcement activity. NFRA has also indicated it is testing AI tools internally to support faster review of financial statements, flag questionable transactions, and improve the consistency of its own oversight process, while stating that explainability remains a core requirement rather than a black box approach. This shift matters for how audit firms should read NFRA's direction. Enforcement is not softening. It is becoming better resourced, more consistent, and harder to treat as a low-probability event. What This Means for Audit Firms Firms preparing for the current inspection cycle should treat the following as priority areas, based on where NFRA's public findings have concentrated: Revisit independence policies and confirm they reflect any changes advised in prior inspection cycles, not just the version on file at the time of the last review Strengthen documentation practices around related party transactions, including arm's length testing evidence Ensure audit files demonstrate the reasoning behind judgments on revenue recognition and estimates, not just the conclusion reached Review internal quality control procedures for consistency across engagement teams, since NFRA's outreach explicitly targets smaller and mid-tier firms that may lack Big Four-level resourcing Treat group audits with cross-border components as higher scrutiny areas, since NFRA's push has direct implications for how Indian component teams support foreign group auditors What This Means for Audit Committees and Finance Leaders For companies rather than audit firms, NFRA's tightening oversight has a direct read-through. A cleaner audit relationship starts with the underlying data and documentation a company provides, not only with the auditor's own procedures. Audit committees should expect: More detailed documentation requests from auditors around related party transactions and revenue recognition support Closer scrutiny of internal controls over financial reporting, particularly where prior audits have flagged deficiencies Longer lead times are built into the audit timeline as firms adjust to more rigorous internal quality reviews ahead of their own NFRA inspections Companies that treat audit readiness as a year-round discipline, rather than a pre-audit scramble, are consistently better positioned when NFRA's tightening standards flow through to the audit relationship. Frequently Asked Questions What is NFRA, and what does it inspect? NFRA is India's National Financial Reporting Authority. It conducts structured inspections of audit firms to check compliance with auditing standards, independence requirements, and quality control procedures, and publishes its findings publicly. What are the most common findings in NFRA inspection reports? Recent public inspection reports show recurring findings in auditor independence, related party transaction documentation, revenue recognition evidence, internal financial controls, and the completeness of audit documentation. How many audit firms does NFRA inspect each year? NFRA has stated it will complete inspections of ten audit firms in FY26, its highest annual number to date, alongside targeted outreach to smaller and mid-tier firms. Is NFRA's approach becoming stricter or more collaborative? Both. NFRA is expanding proactive outreach programs to engage firms before issues surface in an inspection, while continuing full enforcement activity, including inspections and penalties, without reducing scrutiny. Does NFRA's increased inspection activity affect companies, not just audit firms? Yes. As auditors face more rigorous NFRA scrutiny, companies typically see more detailed documentation requests and closer review of internal controls during their own audit engagements. Who should read NFRA inspection insights like this? Audit partners, audit committee members, CFOs, controllers, and internal audit leaders are responsible for audit readiness and the quality of financial reporting oversight. Get the Full Report This overview covers the confirmed public themes in NFRA's recent inspection activity. The complete report includes detailed analysis of specific inspection findings, firm-level patterns, and practical audit readiness recommendations for management teams, audit committees, and internal audit leaders. Related reading: Material Weakness Trends 2026 | Beyond Compliance: Internal Auditor's Role in Implementing SEBI's New RPT Framework | Audit Trail: Ensuring Financial Integrity and Accountability

Compliance management today requires visibility and proactive planning. With numerous regulatory deadlines across Income Tax, GST, FEMA, MCA, SEZ, and STPI, staying organized is essential for businesses to operate smoothly. We have put together the Compliance Calendar for FY 2026–27, designed to help organizations track key due dates and integrate reminders directly into Outlook calendars for better compliance management. Sharing this resource with the hope that it helps teams stay ahead of deadlines and focused on what matters most, building resilient and responsible businesses.

In December 2025, the Financial Accounting Standards Board (FASB) issued ASU 2025-10, Government Grants (Topic 832), introducing dedicated U.S. GAAP guidance for the accounting of government grants received by business entities. Previously, U.S. GAAP lacked a specific standard for such grants, leading companies to rely on analogies to other guidance such as IAS 20, ASC 450, or Subtopic 958-605. This resulted in inconsistent accounting practices and reduced comparability across financial statements. The new update establishes a structured framework for recognizing, measuring, presenting, and disclosing government grants, improving transparency and consistency in financial reporting. Key Highlights Dedicated Guidance: Topic 832 introduces explicit accounting guidance for government grants received by business entities under U.S. GAAP. Clear Grant Classification: Grants are categorized into: ⇨ Asset-related grants: linked to the purchase or construction of long-lived assets. ⇨ Income-related grants: intended to compensate for expenses or losses. Recognition Criteria: Grants are recognized only when it is probable that the entity will meet grant conditions and receive the grant. Measurement: Grants must generally be measured at fair value at recognition, including non-monetary assets. Accounting Approaches for Asset Grants: ⇨ Deferred Income Approach: Grant recorded as deferred income and recognized over the asset’s useful life. ⇨ Cost Accumulation Approach: Grant reduces the carrying amount of the asset, lowering depreciation over time. Enhanced Disclosures: Entities must provide expanded disclosures on the nature of grants, accounting policies applied, grant terms, contingencies, financial statement impacts, and potential repayment risks. Scope The standard applies to business entities and excludes not-for-profit organizations and employee benefit plans, which already follow separate accounting guidance. Certain transactions such as income tax benefits, government guarantees, and below-market interest loans are also excluded. Impact ASU 2025-10 aligns U.S. GAAP more closely with international practices while maintaining its principles-based structure. The update is expected to improve comparability, reduce diversity in practice, and enhance the transparency of government grant reporting.

Standard Setters’ Updates – H2 2025 This edition provides a concise and practical overview of the most significant accounting, regulatory, and sustainability reporting developments from the second half of 2025, helping organizations prepare for upcoming changes in 2026 and beyond. Key Highlights: Major Accounting Standards Updates (ASUs) issued in H2 2025, covering credit losses, internal-use software, derivatives and hedging, purchased loans, government grants, interim reporting, and codification improvements. Simplification and consistency initiatives by FASB, aimed at reducing complexity, improving comparability, and better aligning accounting outcomes with economic substance. Snapshot of FASB current projects, including debt exchanges, environmental credit programs, crypto asset transfers, equity method improvements, and cash flow statement refinements. Regulatory developments from the SEC, including leadership changes, crypto asset guidance, AI and fraud task forces, financial reporting manual updates, and implications of major U.S. fiscal legislation. Sustainability reporting developments, highlighting ISSB exposure drafts and significant simplification of European Sustainability Reporting Standards (ESRS), with reduced reporting burden and enhanced interoperability. Practical effective-date guidance, with appendices outlining ASUs effective in 2025 and 2026 to support timely implementation planning.

The FASB has recently released ASU 2025-06, and it marks one of the most significant shifts in how companies account for internal-use software. With agile and iterative development now the norm, the older, sequential model of capitalization no longer reflected technological reality. ASU 2025-06 modernizes the standard by: 🔹 Removing stage-based capitalization rules 🔹 Introducing clarity on probable-to-complete threshold 🔹 Requiring evaluation of Significant Development Uncertainty (SDU) 🔹 Aligning disclosures with PP&E guidance for greater consistency At Pierag Consulting , we continue to help finance and technology leaders navigate the evolving regulatory landscape, integrating accounting clarity with digital transformation realities. Download the full technical note for a deeper dive into scope, recognition criteria, disclosure requirements, and transition pathways.

Welcome to our Standard Setters' Updates of FASB & SEC. In this publication, we present a concise overview of the latest developments in financial reporting and highlight key considerations as we move through 2025. The Accounting Updates summarize FASB's new guidance issued in the first half of the current year and highlight the accounting standards that are effective in 2025. The FASB Current Projects section provides an overview and status of the items that FASB is actively working on. The Regulatory Updates section brings you noteworthy updates from the SEC. The Sustainability Reporting Developments section outlines the changes to ISSB’s Disclosure and European Union’s Reporting requirements. The Financial Accounting Standards Board (FASB), in November 2024, issued ASU 2024-03 which requires public business entities to disaggregate expenses in the income statement into specific categories and reconcile those to the totals reported in the financial statements. Subsequently, the Board realized a clarification was needed to avoid confusion regarding when the standard applies, particularly in interim periods. Therefore, the Board issued ASU 2025-01 clarifying the effective date to be the first annual reporting period beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. In 2022, the Securities and Exchange Commission (SEC) published interpretive guidance as Staff Accounting Bulletin (SAB) No. 121 on Topic 5.FF, Accounting for Obligations to Safeguard Crypto-Assets an Entity Holds for its Platform Users. SAB No. 121 required entities safeguarding crypto-assets to record a liability and a corresponding asset at fair value. However, this guidance created practical challenges and accounting complexities. To address these concerns, the SEC later issued SAB No. 122, rescinding the interpretive guidance published as SAB No. 121. The amendment removes the obligation to recognize a safeguarding liability and corresponding asset, instead directing entities to apply traditional loss contingency guidance under ASC 450-20: Loss Contingencies when accounting for obligations to safeguard crypto-assets. Therefore, the Board issued ASU 2025-02 to inform about SAB No. 122 rescinding the interpretive guidance in SAB No. 121. Entities should apply the rescission of Topic 5.FF on a fully retrospective basis in annual periods beginning after December 15, 2024.

Point of View | 6-8 Min Read Transparent financial reporting depends on more than accurate top-line numbers. Investors, lenders, and other capital providers rely on financial statements to evaluate a company's performance, assess its prospects for future cash flows, and benchmark it against peers, and a critical part of that evaluation is understanding what actually makes up a company's expenses. Expense composition reveals cost structure, operational efficiency, and long-term sustainability in ways that a single aggregated number cannot. Historically, U.S. GAAP did not require consistent disaggregation of income statement expenses, which left companies free to report at very different levels of detail. That inconsistency made it genuinely difficult for investors and analysts to compare financial results across entities and industries, since one company's "operating expenses" line might hide detail another company discloses openly. This is the gap DISE, the Disaggregation of Income Statement Expenses requirement, was built to close. How DISE Came to Be FASB first addressed this gap in July 2023, introducing a proposed Accounting Standards Update titled Income Statement, Reporting Comprehensive Income, Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. After gathering extensive feedback through public comment periods and roundtable discussions with preparers, investors, and auditors, FASB finalized the amendments as ASU 2024-03 in November 2024. The goal is straightforward: enhance the decision-usefulness of financial reporting by requiring companies to disclose disaggregated expense detail within the footnotes of their financial statements, giving users of financial statements a clearer view of cost composition than aggregated income statement line items alone can provide. ASU 2025-01: Clarifying When DISE Actually Applies In January 2025, FASB issued ASU 2025-01, Income Statement, Reporting Comprehensive Income, Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date. This update did not change the substance of the disaggregation requirement itself. It resolved confusion about exactly when the requirement takes effect, particularly around how it applies to interim reporting periods. The clarified effective dates are: Annual reporting periods: beginning after December 15, 2026 Interim reporting periods: within annual reporting periods beginning after December 15, 2027 Early adoption is permitted for companies that want to get ahead of the requirement rather than wait for the mandatory effective date. The updates apply to all public business entities, without exception, based on size or industry. What DISE Requires in Practice At its core, DISE requires public business entities to disaggregate expenses reported in the income statement into specific, defined categories and to reconcile those disaggregated figures back to the totals already reported in the financial statements. Rather than a single "cost of revenue" or "operating expenses" line, users of the financial statements will be able to see the underlying components that build up to those totals, disclosed within the footnotes. This is a meaningfully different level of transparency than most companies currently provide, which is why the practical implementation work matters more than the disclosure itself. What This Means for Finance and Reporting Teams Even with effective dates that sit a full reporting cycle or more away, the practical work behind DISE compliance is not something to defer until the deadline approaches. Building the general ledger structure, cost allocation methodology, and reconciliation process needed to disaggregate expenses credibly, and to reconcile those disaggregated figures back to totals already reported in the financial statements, is a multi-quarter undertaking for most organizations, not a footnote drafted at year-end close. Companies should treat the extended effective date as planning time, not slack in the schedule. Early adopters in particular may find that getting ahead of the requirement gives them a cleaner comparative baseline once the mandatory effective date arrives, rather than a first year of disclosure that reads as rushed against prior periods that used a different level of detail. Frequently Asked Questions What is DISE in accounting? DISE stands for Disaggregation of Income Statement Expenses, a FASB requirement under ASU 2024-03 that requires public business entities to break down income statement expenses into specific categories and reconcile them to the totals already reported in the financial statements. When does DISE take effect? Under ASU 2025-01's clarified effective dates, annual reporting periods beginning after December 15, 2026, must comply, with interim reporting periods within annual reporting periods beginning after December 15, 2027, also required to comply. Early adoption is permitted. What did ASU 2025-01 change compared to ASU 2024-03? ASU 2025-01 did not change the substance of the DISE requirement. It clarified the effective date, resolving confusion about how the requirement applied to interim reporting periods specifically. Why did FASB introduce the DISE requirement? Because U.S. GAAP historically did not require consistent disaggregation of income statement expenses, creating diversity in reporting practices that made it difficult for investors to compare cost structures and operational efficiency across companies and industries. Does DISE apply to all companies? It applies to all public business entities, regardless of size or industry, with no exceptions carved out in the standard. Who should be preparing for DISE now? CFOs, controllers, and financial reporting teams at public business entities, particularly those whose general ledger systems are not currently structured to produce reconciled expense detail at the category level, the standard requires. Talk to Our Team Preparing your general ledger and reporting processes for DISE compliance ahead of the 2026 and 2027 effective dates? Pierag's Accounting Advisory practice helps finance teams build the data structure and reconciliation processes this standard requires, well ahead of the deadline. Talk to our team about your reporting readiness. Related reading: Standard Setters' Updates, H2 2025 Edition | Audit Trail: Ensuring Financial Integrity and Accountability

This compliance calendar serves as a vital tool for businesses and individuals in India to ensure they meet necessary legal and statutory filling requirements for Income tax, GST, FEMA, MCA, SEZ & STPI throughout the year.