NFRA flags documentation gaps in some Big Four firms

NEW DELHI: The National Financial Reporting Authority (NFRA) on Friday launched the primary inspection report of firms which can be a part of the community of Big Four audit firms, pointing to gaps in a number of locations, together with in the way in which audit papers had been secured and compliance with provisions of the Companies Act and prescribed requirements.
“This is a practice that is followed in other countries, including the US and the UK, and we are not trying to discipline or find faults with the firms.The idea is to understand the process followed by the firms… if the process is fine then the quality of audit will also be good. The purpose is to drive quality change across the firm so that shareholders have comfort in the audited accounts of companies,” a NFRA official mentioned. This yr, NFRA randomly picked up audits carried out by the recognized firms and assessed them. The inspection shall be an annual train with firms to be chosen by rotation.

The first set of inspection reviews famous that Price Waterhouse Chartered Accountants (PWCA) had voluntarily restricted non-audited companies to non-audited shoppers, its subsidiaries and its materials abroad associates. There had been some gaps associated to its audit work and processes, which had been famous in the inspection report.
In distinction, in case of SR Batliboi (SRBC), which is an affiliate of EY, the regulatory company famous that the agency’s insurance policies didn’t recognise the direct and oblique relationship between SRBC and its community members of the worldwide community EY, which had been violations of sure provisions of the Companies Act.
It pointed to a number of different gaps, together with these associated to audit documentation. Commenting on the report, SRBC mentioned: “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.”
The inspection report on BSR & Co, which is a part of the KPMG community, mentioned the agency didn’t present particulars of the community entities and non-audit companies offered to audit shoppers. It additionally pointed to insufficient management over creation, modifications and evaluation of audit papers, and likewise the absence of formal documentation and explanations relating to the agency’s governance and administration constructions.
In case of DHS (Deloitte Haskins & Sells), NFRA pointed to a minimum of one case the place the audit agency additionally offered non-audit companies “which amounted to self-review threat”.