NFRA Demands Systemic Improvements from PwC, EY, BDO Affiliates Over Audit Failures

National Financial Reporting Authority (NFRA) Releases Audit Quality Inspection Reports

Key Findings and Recommendations

The National Financial Reporting Authority (NFRA) has released four audit quality inspection reports for Price Waterhouse & Affiliates' Network, SRBC & Co, MSKA & Associates, and BSR Affiliates Network. The reports aim to provide actionable regulatory feedback to the audit firms to enhance their quality control systems.

Recommendations for Strengthening Independence Protocols and Internal Governance

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The reports suggest the following key recommendations:

• Rigorous verification of "arm's length" loan terms
• Stricter monitoring of non-audit services
• Formalizing Whistleblower committees

Audit Quality Inspection Objectives

The overall objective of audit quality inspections is to evaluate compliance with auditing standards and other regulatory and professional requirements. This includes:

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• Evaluating the adequacy and effectiveness of the quality control system
• Assessing the governance framework and its functioning
• Evaluating the system of assessment and identification of audit risks and mitigating measures

Price Waterhouse & Affiliates' Network

The report highlights non-compliance on four key aspects, including:

• Independence in respect of six partners
• Irregularities in audit procedures in investments held for sale
• Inadequate arm's length assessment of loans given to subsidiaries
• Non-compliance with requirements of Ind AS 24

Ind AS 24

Ind AS 24 is an accounting standard for related party disclosures, aimed at ensuring that a company's financial statements highlight the possibility that its financial position may have been affected by the existence of related parties and by transactions with them.

MSKA & Associates

The report suggests that the firm is required to:

• Strengthen network-wide controls over the provision of non-audit services
• Ensure mandatory re-sign-off by the Engagement Partner for any post-issuance modifications
• Formalize the Whistleblower Committee to oversee and investigate complaints

Corrective Actions

Corrective actions have been initiated through training programs on the Audit LMS, but further strengthening is required in training and monitoring, including:

• Strengthening audit evaluation procedures relating to revenue and receivables
• Assessing their impact on financial reporting