NFRA planning fresh round of inspections of Big Four from March
March 2, 2024
The National Financial Reporting Authority (NFRA) is planning to come down heavily on the Big Five if they fail to take corrective measures suggested in the previous inspections concluded in December.
The next round of inspection of the Big Five is beginning in March, and the NFRA will be especially looking for instances where the position of the statutory auditor has been compromised due to related entities of these top auditors undertaking non-audit work for the same companies.
The focus on auditors’ independence will be greater this time because despite the audit regulator pointing out the links between network firms of the Big Five, the firms have denied the regulator’s claims.
“If it is found that the independence of a statutory auditor has been compromised as a result of its related entities carrying out consultancy or other non-audit work, and if such auditor has also failed to do audit properly, then such firm could be held liable under section 132 (4) of the Companies Act. During our next annual inspection, we will see if they have taken any corrective steps,” Ajay Bhushan Pandey, chairman, NFRA told FE.
Section 132 (4) gives power to NFRA to investigate auditing lapses, impose penalties and debar auditing professionals and firms. In the case of firms, the penalties could be 10 times of the fees received.
NFRA had earlier found wide prevalence of the practice of related parties of top auditors rendering various non-audit services like administrative, consultancy, forensics, due diligence etc., to the same firms audited by them. For instance, in the case of Walker Chandiok & Co LLP (WCCL), the regulator has said that firms namely Grant Thornton Bharat LLP, Grant Thornton Advisory Private Ltd, and Grant Thornton International Ltd are ‘directly or indirectly’ related to it, as per the Companies Act 2013. WCCL, however, said that some observations of NFRA are factually incorrect.
Similarly, NFRA has observed that SRBC was providing audit services to a client while some other EY network entity was providing non-audit services to the auditee group which was in violation of the companies law. SRBC replied that the EYG (EY Global) independence policy is not contrary to The Institute of Chartered Accountants of India’s (ICAI’s) code of ethics.
NFRA also said that firms like WCCL and BSR & Co LLP didn’t provide details of their network entities, and hence the regulator was unable to evaluate whether the firms complied with the law.
“Such practices raise questions on the very independence of auditors which is critical for an unbiased audit. We have documented these practices in our audit report,” said Pandey.
In December, NFRA came out with the first round of inspection reports on large audit firms such as Price Waterhouse Chartered Accountants LLP, Deloitte Haskins & Sells LLP, WCCL, SRBC, and BSR & Co.
[The Financial Express]
