Page 57 - Banking Finance January 2024

FEATURES

Regulator flags audit lapses by Big 4

companies

T he National Financial Reporting Authority (NFRA) With respect to SRBC, the watchdog said the audit firm's

has identified "lapses" in auditing related activity
policies and procedures for ensuring the integrity of audit
of network entities of the Big Four. In the course
documentation are not fully in accordance with certain
of detailed audit quality inspections, the
watchdog found several alleged violations, including those requirements of SQC 1.
of Sections 144 and 141 of the Companies Act, 2013. One of the observations is that the independent policies of
the audit firm do not recognise the direct and indirect
Inspections were carried out at Deloitte, Haskins & Sells,
relationship between SRBC and its network members of the
BSR & Co, SRBC & Co and Price Waterhouse Chartered
international network Ernst & Young Global Limited (EY).
Accountants.BSR & Co and SRBC & Co are the network firms
of KPMG and EY respectively.
"This has resulted in violations of Sections 144 and 141 of
the Companies Act, 2013. The India-specific requirements
In the case of Deloitte, Haskins & Sells, the regulator has
flagged six alleged deficiencies, including the audit firm not in the Independence Policy of the Audit Firm do not comply
reassessing and re-categorising audit risk in one engagement with section 144 of the Companies Act, 2013," NFRA said.
as required, and its own policy manual. In the case of Price Waterhouse Chartered Accountants, the
regulator said the audit firm as part of its internal quality
NFRA has made six observations with respect to BSR, monitoring policy and process, performs inspection of a
including absence of formal documentation and inadequate sample of individual audit engagement files and the
explanations regarding the firm's governance and inspection teams select certain audit areas for review.
management structure indicating non-compliance with SQC
1's (Standards on Quality Control) Leadership Responsibilities "However, there is no document explaining the rationale or
for Quality. criteria for selection of these specific audit areas for review
by the inspection team," NFRA noted among its
Among others, it said the audit firm did not provide, during observations.
this inspection, details of KPMG network entities, and non-
audit services provided by those entities to audit clients of
PWC, Deloitte, EY and KPMG are the four major global
the firm. entities in the auditing space and they are also known as
'Big 4'.
"Consequently, the inspection team was unable to evaluate
whether the firm is in full compliance with the
independence-related requirements of the Code of Ethics The inspections of the audit firms were initiated in
and SQC 1. The inspection team observed the need for December 2022, and covered various aspects, including
improvement in the firm's internal review of compliance with selected audit documentation of the annual statutory audit
independence requirements by its personnel," the report on of financial statements for the year ended March 31, 2021,
BSR said. according to four reports released by NFRA.

50 | 2024 | JANUARY | BANKING FINANCE