NFRA report flags audit lapses at PwC corporations, highlights associated occasion transaction and independence issues; corporations decide to enhancements, ETCFO
In a major improvement, the Nationwide Monetary Reporting Authority (NFRA) has printed its 2023 audit inspection report on two outstanding audit corporations, Worth Waterhouse Chartered Accountants LLP (PWCA) and Worth Waterhouse & Co Chartered Accountants LLP (PW & Co CA). The inspection reveals main lapses in auditing practices, with a selected concentrate on weaknesses within the verification of Associated Social gathering Transactions (RPTs), failure to stick to independence requirements, and insufficient documentation.
Earlier in a collection of such inspection stories on large auditing corporations, the NFRA inspection report had slammed MSKA & Associates for audit high quality lapses, with the agency vowing to enhance. Moreover, the NFRA’s newest audit inspections revealed main deficiencies in BSR & Co. and Lodha & Co.
NFRA has raised issues over MSKA & Associates’ audit practices, highlighting deficiencies in governance and procedures, whereas the agency pledges quick corrective actions to handle the problems and offered clarifications on a couple of chosen areas.
Key Lapses Uncovered in Audit Processes
The report highlights a number of deficiencies that elevate questions concerning the integrity of audit procedures adopted by these corporations. Probably the most outstanding points have been discovered within the verification of Associated Social gathering Transactions, a vital space that impacts the reliability of monetary statements.
These lapses in audit processes might jeopardise the reliability and transparency of the audited monetary statementsIn response to the NFRA
Associated Social gathering Transactions (RPTs) on the Coronary heart of Audit Failures
NFRA discovered that in audits of firms audited by PWCA, together with Firm A, the audit groups failed to supply adequate documentation supporting their conclusion that Associated Social gathering Transactions have been at arm’s size.
Whereas the audit staff in contrast costs of associated occasion transactions with these of unrelated events, they did not doc the precise items or providers in contrastSaid the NFRA report.
Moreover, the audit didn’t adequately handle qualitative elements similar to phrases and situations, ensures, or dangerous money owed, that are required below Indian accounting requirements (Ind AS 24).Furthermore, within the case of Firm B, an organization with just one associated occasion, the audit staff didn’t confirm that the RPTs have been at arm’s size. “The audit staff relied on assembly minutes from the Audit Committee however did not substantiate these claims with correct documentation,” the NFRA inspection report revealed.
Independence Coverage Beneath Scrutiny
The NFRA additionally flagged issues concerning the independence of the auditing course of. A key commentary from the earlier yr’s inspection was that PwC’s native coverage allowed community corporations to supply non-audit providers to abroad holding firms of audit purchasers.
This was deemed to compromise the independence of the audit course of for Indian purchasersThe NFRA acknowledged
Though PWCA had dedicated to revising their independence coverage, the most recent inspection revealed that the required updates had not been applied. The NFRA has now instructed PWCA to replace its Independence Coverage to make sure compliance with Indian rules and submit the revised coverage for evaluation inside 30 days.
Inspection Methodology and Course of
The NFRA’s inspection course of started in April 2024, with an in depth evaluation of the agency’s inner management techniques, audit high quality management procedures, and the sufficiency of documentation in chosen audit information. The inspection staff carried out an on-site evaluation on the corporations’ workplaces in September 2024, adopted by detailed discussions with engagement groups and scrutiny of their audit procedures.
The NFRA acknowledged, “We reviewed a number of areas of focus throughout the inspection, together with monetary controls, associated occasion transactions, and asset impairment.”
Three particular person audit engagements for the yr ending March 31, 2023, have been chosen for the evaluation. These engagements have been chosen primarily based on threat elements, together with monetary and non-financial dangers related to the audited firms. The three areas of focus have been revenue-related inner monetary controls, associated occasion transactions, and impairment of non-financial property.
The latest audit inspections carried out by the NFRA on BSR & Co. LLP and Lodha & Co. LLP have revealed important lapses in associated occasion transactions, audit documentation, and independence controls. Nonetheless, the report additionally notes enhancements compared to earlier inspections, notably for BSR & Co. LLP, the place there was a considerable enhancement within the SQC 1 – Agency-wide High quality Controls. The findings point out that a lot of the points raised within the earlier inspection report have been successfully addressed and rectified.
Necessary Dates and Timeline
The timeline of occasions associated to the NFRA’s inspection course of started with the publication of the primary inspection report on the NFRA’s web site on December 22, 2023. This was adopted by an preliminary assembly with the audit corporations on the NFRA workplace on April 10, 2024. On June 25, 2024, the NFRA communicated particular observations relating to the engagements to the corporations. The on-site inspection on the Worth Waterhouse Chartered Accountants (PWCA) workplace came about on September 19, 2024. A draft inspection report was issued on December 24, 2024, and eventually, the ultimate inspection report was printed on February 13, 2025.
Audit Companies’ Response
In response to the NFRA’s findings, each PWCA and PW & Co CA acknowledged the observations and dedicated to rectifying the deficiencies identified within the report.
We’re dedicated to making sure full compliance with all statutory rules and enhancing our documentation processesAudit Companies’ Response acknowledged.
The corporations indicated they have been updating their independence insurance policies to adjust to Indian statutory rules and promised to boost documentation and procedures for verifying Associated Social gathering Transactions in future audits.
Regardless of the dedication to alter, the NFRA emphasised that these lapses point out vital gaps within the corporations’ inner controls. “It’s important that these corporations implement important modifications and undergo steady monitoring to forestall recurrence sooner or later,” acknowledged the NFRA, highlighting the significance of remedial motion.
