In a sensational development, 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 2022 inspection report.

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 as unacceptable.

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In its inspection report of SRBC & Co, the authority 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.

On BSR, the NFRA said the practice of engagement partners not signing audit reports was found to be in violation of Standard on Quality Control (SQC) 1.

“The firm’s system of ensuring independence of its personnel requires improvement,” the NFRA added. The NFRA said in respect of three of the five selected company audits, the BSR’s audit procedure relating to impairment of investment was found deficient.

In its response, BSR said, “We appreciate the recommendations … and will constructively engage with Hon’ble NFRA in evaluating and implementing further improvements to our policies and practices.”

The NFRA said the audit documentation in SRBC & Co inspection, in many cases, 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,” SRBC & Co. responded.

In the case of PwC, 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 took into account the 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 the NFRA-governed audit clients.

It 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.

Deloitte, in its response, 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”.