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.

- Gireesh Chandra Prasad

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.

NFRA said that 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.