NFRA expresses dissatisfaction in Audits Quality Inspection of Big Four Firm [Read Report]

NFRA advises audit firms to amend its India policy to acknowledge the direct or indirect connections between the member firms within its international network
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The inspection report for 2022 by the National Financial Reporting Authority (NFRA) has identified deficiencies in the audit processes of BSR & Co, Deloitte Haskins & Sells, SRBC & Co, and Price Waterhouse Chartered Accountants (PwC), as disclosed on Friday.

During the comprehensive review of BSR & Co’s audit control systems, NFRA deemed the firm’s assertion of independence from KPMG India entities unacceptable. NFRA noted that BSR failed to furnish information about its leadership structure, KPMG Network entities, and non-audit services provided by those entities to the firm’s audit clients during the inspection.

NFRA remarked that the firm’s system for ensuring the independence of its personnel needs enhancement. Additionally, NFRA found deficiencies in BSR’s audit procedures related to impairment of investment in three out of five selected company audits. BSR’s practice of engagement partners not signing audit reports was deemed a violation of Standard on Quality Control (SQC)

In response, BSR expressed appreciation for the recommendations and committed to engaging constructively with NFRA to evaluate and implement further improvements to policies and practices. PwC assured NFRA of its commitment to maintaining appropriate controls over provisions for non-audit services to public interest entities. Deloitte, in its response, stated that it has outlined certain matters to address facts in the report and incorporate any amendments in the final report.

NFRA’s inspection report on SRBC & Co revealed that the independent policies of the audit firm did not acknowledge the direct and indirect relationships between it and its network members of the international network Ernst & Young Global Ltd.

The NFRA recommended that the audit firm should reassess all its ongoing engagements, considering EY Network entities as directly or indirectly related to SRBC Entities. The inspection report emphasized that identified weaknesses should be viewed as areas for potential improvement and not as a negative assessment of the audit firm’s work, unless specifically indicated otherwise.

 In the inspection of SRBC & Co’s audit documentation, the NFRA noted that, in numerous instances, it did not meet the requirements of Standard on Auditing (SA) 230, as the documents were signed off as completed before the conclusion of the audit procedures. SRBC & Co responded by expressing commitment to delivering sustainable and consistently high-quality audits, considering NFRA’s recommendations as constructive in enhancing audit quality.

In the case of Price Waterhouse Chartered Accountants, the NFRA identified a violation of SA in the firm’s audit committee policy for audited entities, describing “Those Charged with Governance.” Although PwC voluntarily restricted providing non-audit services to NFRA-governed clients, its subsidiaries, and significant overseas associates.

NFRA observed that overseas member firms within the PwC network were allowed to offer such services to overseas holding companies of NFRA-governed audit clients. NFRA recommended that PwC take additional measures to prevent potential non-compliance with Indian law and incorporate mitigating measures into its Independence Policy Manual.

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