New Delhi, March 16 The National Financial Reporting Authority (NFRA) on Monday issued four audit quality inspection reports of at least seven chartered accountancy firms, and flagged certain shortcomings.
The inspection reports cover Price Waterhouse Chartered Accountants LLP, Price Waterhouse & Co Chartered Accountants LLP (PW&A Network), BSR & Co LLP, BSR & Associates LLP, BSR and Co, BSRS & Co (formerly known as BSR and Associates), SRBC & Co LLP, including network firms of SR Batliboi & Affiliates, and MSKA & Associates LLP.
In its report covering the firms – Price Waterhouse Chartered Accountants LLP (PWCA hereinafter) and Price Waterhouse & Co Chartered Accountants LLP – the regulator has made eight observations, including about irregularities in audit procedures in investments held for sale and impairment assessment of investment not as per Ind AS 36, inadequate arm's length assessment of loans given to subsidiaries as per SA 550, non-compliance with the requirements of SA 570 and non-compliance with requirements of Ind AS 24.
Other observations pertain to independence in respect of six partners, matters relating to HR policy regarding recruitment, post-sign-off modification and control deficiency over other expenses.
Ind AS 36 pertains to impairment of assets, SA 550 refers to related parties, SA 570 (Revised) pertains to going concern, and Ind AS 24 pertains to related party disclosures.
NFRA said this year's inspections involved a review of the remedial action taken by the firms in response to the previous inspection observations, as well as areas of quality control – consultation, monitoring and human resources.
There was also a review of the financial statements for the year ended March 31, 2024, for five selected audit engagements, and the focus was on three significant audit areas – revenue and loans and advances, and one was engagement-specific.
In another inspection report of BSR & Co LLP, BSR & Associates LLP, BSR and Co, BSRS & Co (formerly known as B S R and Associates), the regulator said that in terms of firm-wide quality aspects, it has been found to be generally compliant with independence requirements and previous years’ inspection findings.
"The policies on acceptance of non-audit services for the immediate past audit clients and the root cause analysis policies require strengthening.
"...in one audit engagement of an unlisted company, we observed insufficient evidence supporting the audit opinion. Other matters affecting overall audit quality are identified in the selected audit engagements. However, these are not of such significance as to affect the audit opinion," the regulator said.
The inspection scope included a review of firm-wide quality controls pertaining to independence, human resources, consultations and monitoring to assess adherence to SQC-1, including follow-up from previous inspections, and a review of selected audit documentation for the annual statutory audit of financial statements for the year ended March 31, 2024.
It focused on the areas of revenue recognition and loans and advances, as well as one engagement-specific area.
With respect to the inspection report of SRBC & Co LLP, including network firms of S R Batliboi & Affiliates. NFRA observed that there is a need to have an appropriate monitoring mechanism to ensure that the firm's policies and procedures on firmwide independence are operating effectively and complied with in practice.
In other observations, the watchdog noted that in respect of shares & investments (in the selected audit engagement), an appropriate audit procedure was not performed to evaluate the arm's length price of related party transactions.
NFRA, in its inspection report of MSKA & Associates LLP, said the firm is required to strengthen network-wide controls over the provision of non-audit services and ensure mandatory re-sign-off by the engagement partner for any post-issuance modifications.
"Strengthening of audit evaluation procedures relating to revenue and receivables, as well as assessing their impact on financial reporting, is required. In addition, the firm should strengthen its root cause analysis through more comprehensive coverage," it said among other observations.
