NFRA flags gaps in statutory audits done by top audit firms
India’s audit regulator on Friday pointed to gaps and inadequacies in procedures followed and documentation of statutory audits done by top audit firms. The National Financial Reporting Authority (NFRA) issued its report after inspections at BSR & Co. LLP, Price Waterhouse Chartered Accountants LLP, Deloitte Haskins & Sells LLP, and SRBC & Co. LLP. The observations are not disciplinary in nature, but an opportunity for the auditors to improve their systems and procedures. The inspections are part of the regulator’s efforts to monitor quality of service by audit firms, assess their compliance with auditing and accounting standards, and suggest improvements.
In its report, the regulator highlighted the need for adhering to auditor independence requirements in certain cases, and red-flagged gaps in documentation in other cases.
As per NFRA, SRBC’s policies and procedures for ensuring integrity of audit documents are not fully in accordance with some requirements of a quality control standard. The finalized and signed-off audit documentation is editable at any time before archival without affecting the sign-offs, NFRA alleged. It also said that the independent policies of the audit firm do not recognize the direct and indirect relationship between SRBC and members of the international network of Ernst & Young Global Ltd (EY). This has resulted in violations of Sections 144 and 141 of the Companies Act, 2013, NFRA alleged. These sections deal with prohibited services and eligibility of auditors.
In the case of BSR & Co. LLP, NFRA alleged absence of formal documentation and deficient audit procedure relating to impairment of investment in the case of three out of five selected company audits. NFRA pointed out that the firm did not provide, during the inspection, details of KPMG network entities, and non-audit services provided by those entities to audit clients of the firm. So, the inspection team could not evaluate whether BSR is in full compliance with the independence-related requirements of the code of ethics and quality control standard.
