In its inspection report 2022, which was made public on Friday, the National Financial Reporting Authority (NFRA) discovered flaws in the audit procedures of Price Waterhouse Chartered Accountants (PwC), BSR & Co., Deloitte Haskins & Sells, and SRBC & Co.

During the NFRA's firm-wide audit control system examination of BSR & Co., the firm's assertion of independence from KPMG India businesses was deemed unsatisfactory. According to the NFRA, during the examination, BSR failed to disclose information about its leadership structure, KPMG Network businesses, and non-audit services rendered to the firm's audit clients. 

The NFRA continued, "The firm's system for guaranteeing the independence of its personnel needs to be improved." The BSR's audit procedure pertaining to investment impairment was deemed inadequate by the NFRA for three out of five corporate audits that were chosen for examination. It was determined that BSR's practice of engagement partners failing to sign audit reports was against Standard on Quality Control (SQC) 1. 

In response, BSR stated: "We value the suggestions and will work cooperatively with the Hon'ble NFRA to assess and implement additional enhancements to our policies and procedures." 

"We stay dedicated to making sure that we have proper and strict controls over the provisions for non-audit services to public interest entities," PwC stated to the NFRA. "Setting out certain matters to the facts included in the report to incorporate any amendments in the final report" is what Deloitte said in its answer to the NFRA.

In its inspection report on SRBC & Co, the NFRA discovered that the audit firm's independent policies did not identify the direct and indirect relationship between it and its network members of the international network Ernst & Young Global Ltd. The financial reporting authorities has advised the audit company to amend 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 National Fire Protection Association (NFRA) urged.

The inspection report said that the flaws should be considered as areas for future improvement rather than a negative assessment of the audit firm's work unless clearly stated otherwise. The NFRA stated that audit paperwork in SRBC & Co inspections did not meet the standard of Standard on Auditing (SA) 230 in many cases because the documents were signed off as completed before the audit procedures were completed.

"We are committed to delivering long-term, consistent high-quality audits and see NFRA's recommendations as very constructive in supporting our goal of improving audit quality." With our firm's strong emphasis on quality control systems, governance, people, tools, and processes, we remain committed to maintaining the trust that stakeholders invest in us. "We look forward to working collaboratively with all professional bodies to serve the public interest and maintain trust in the audit profession," said SRBC & Co.

The NFRA found Price Waterhouse Chartered Accountants' policy of the audit committee of the audited entities as "Those Charged with Governance in Violation of SA" in the instance of Price Waterhouse Chartered Accountants.

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The NFRA acknowledged PwC's policy decision to limit non-audit services to NFRA-governed clients, subsidiaries, and material overseas associates. However, it discovered that PwC network foreign member firms were able to deliver those services to overseas holding corporations of NFRA-governed audit customers.

The authority has recommended PwC to take additional precautions to avoid any noncompliance with Indian law and to include mitigating measures in its Independence Policy Manual. According to Deloitte Haskins and Sells' inspection report, the audit firm supplied non-audit services in one engagement, posing a "self-review threat." According to the investigation, there was no board as stipulated in the networking agreement.