India’s National Financial Reporting Authority (NFRA) has recently conducted inspections on audit companies associated with BDO, EY, KPMG, and PwC, revealing a series of deficiencies in their work. The findings, detailed in inspection reports released on 16 March, highlighted various shortcomings in key areas such as audit independence, internal governance, and scrutiny of related-party transactions.
Specifically, the NFRA raised concerns about the independence of six partners affiliated with PwC and identified issues in recruitment-related human resources policies. During file reviews, irregularities were reported in audit work related to investments held for sale and impairment assessments. Additionally, the watchdog noted insufficient evaluation of whether loans to subsidiaries were on an arm’s length basis and highlighted that controls over other expenses and related payments lacked adequate documentation.
In its review of MSKA & Associates, a BDO affiliate, the NFRA emphasized the need for tighter network-wide controls on non-audit services and required the engagement partner to re-sign any audit report that was modified after issuance. For EY affiliate SRBC & Co, the regulator recommended stronger monitoring to ensure firm-wide independence policies are effectively implemented.
On the other hand, KPMG’s BSR Affiliates Network was largely compliant with independence requirements, addressing practice-wide quality control issues from previous inspections. However, the company was advised to enhance its policies on accepting non-audit work for recently audited clients and improve its root cause analysis framework.
The NFRA stated that these inspections serve as a valuable tool to provide actionable regulatory feedback to audit firms earlier in the financial reporting cycle, aiding them in enhancing their quality control systems. Ultimately, these inspections contribute to strengthening financial market integrity and protecting the interests of investors and creditors.
The original article “NFRA finds gaps in controls at Indian arms of audit companies” was originally published by The Accountant, a GlobalData owned brand. It is important to note that the information provided in this article is for general informational purposes only and should not be relied upon as professional advice. It is recommended to seek professional or specialist advice before making any decisions based on the content presented.
