The National Financial Reporting Authority (NFRA) has found deficiencies in the audit processes of BSR & Co, Deloitte Haskins & Sells, SRBC & Co, and Price Waterhouse Chartered Accountants (PwC) in its inspection report 2022, released on Friday.
In its firm-wide review of audit control systems of BSR & Co, the NFRA found the firm’s claim to being independent of KPMG India entities was unacceptable.
The NFRA said BSR did not provide details of its leadership structure, KPMG Network entities, and non-audit services provided by those entities to audit clients of the firm during inspection.
“The firm’s system of ensuring independence of its personnel requires improvement,” the NFRA added. The NFRA said in respect of three of five selected company audits, the BSR’s audit procedure relating to impairment of investment was found deficient.
BSR’s practice of engagement partners not signing audit reports was found to be in violation of Standard on Quality Control (SQC) 1.
BSR in its response said: “We appreciate the recommendations … and will constructively engage with Hon’ble NFRA in evaluating and implementing further improvements to our policies and practices.”
PwC told NFRA: “We remain committed to ensuring that we have appropriate and rigorous controls over the provisions for non-audit services to public interest entities.”
Deloitte in its response has told the NFRA that it has “set out certain matters to the facts included in the report to incorporate any amendments in the final report”.
The NFRA in its inspection report of SRBC & Co found the independent policies of the audit firm did not recognise the direct and indirect relationship between it and its network members of the international network Ernst & Young Global Ltd.
The financial reporting authority has recommended the audit firm make necessary changes to its India policy to recognise the direct or indirect relationship between the member firms of their international network.
“It should also review all its ongoing engagements considering EY Network entities as directly or indirectly related to SRBC Entities,” the NFRA said.
The inspection report stated the weaknesses should be treated as areas of potential improvement and not a negative assessment of the work of the audit firm unless specifically indicated otherwise.
Audit documentation in SRBC & Co inspection, in many cases, the NFRA said, did not meet the requirement of Standard on Auditing (SA) 230 as the documents were signed off as completed before the completion of the audit procedures.
"We are committed to delivering sustainable, consistent high quality audits and consider NFRA’s recommendations very constructive in supporting the objective of enhancing audit quality. With our firm’s strong focus on systems of quality control, governance, talent, tools and methodologies, we remain committed to upholding the confidence stakeholders place in us. We look forward to working with all professional bodies collaboratively to serve the public interest and maintain trust in the audit profession" said SRBC & Co.
In the case of Price Waterhouse Chartered Accountants, the NFRA found the firm’s policy of the audit committee of the audited entities as “Those Charged with Governance in violation of SA”.
The NFRA noted PwC’s policy decision to voluntarily restrict providing non-audit services to NFRA-governed clients, its subsidiaries and its material overseas associates. However, it found the overseas member firms of the PwC network were permitted to provide those services to overseas holding companies of NFRA-governed audit clients.
The authority has advised PwC to take further steps to avoid potential non-compliance with Indian law and incorporate in its Independence Policy Manual mitigating measures.
The inspection report of Deloitte Haskins and Sells observed that in one engagement the audit firm provided non-audit services, which amounted to a “self-review threat”. The report observed there was no board as envisaged in the networking agreement.
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