NEW DELHI: The National Financial Reporting Authority (NFRA) is going to inspect the Big Four audit firms as well as other top auditors of large listed entities in 2024, an official familiar with the development told FE.
“We shall inspect the Big four audit firms again this year in order to check whether the corrective measures highlighted in the December report have been taken or not,” the official said.
In early December 2023, the accounting watchdog, which came into being in 2018, released a report highlighting the deficiencies in the audit processes of the Big four companies – Deloitte Haskins & Sells BSR & Co (EY), SRBC & Co (KPMG) and Price Waterhouse Chartered Accountants. It also came out with a report of Walker Chandiok and Co, later during the month. This was the first time the regulator has scanned the major audit firms.
The other entities which NFRA would select for inspection in 2024 would depend on the large companies that they audit. NFRA has identified a few large companies listed on the exchanges, and based on the assessment of their financial statements and other factors, they would be selecting auditors who are rendering their services to those firms for inspection.
“We’ve assessed the financial statements etc of some large companies where we have identified some probable issues . These are generally ‘risky parameters’. Based on this, we shall select the auditors of their firms for inspection,” the official said.
Largely, in the inspection reports for 2023, the NFRA found that major auditors were providing non-audit services to their clients, which was leading to a conflict of interest with the auditees, and subsequently causing lapses in the auditing process.
The other issues identified by the watchdog were improper communication of the auditors with the directors of the company and lack of documentation for their assessments.
For inspection, the NFRA adheres to the regulations outlined in the Companies Act, 2013 meant for auditors to follow, and the audit standards and guidelines established by the Institute of Chartered Accountants of India. These include the Code of Ethics, which enumerates potential threats such as those associated with self-interest, self-review, advocacy, familiarity, and intermediation.
Last week, NFRA Chairperson Ajay Bhushan Pandey told FE that the watchdog would take further actions on defaulting auditors this year, for instant cases and pre-2018 cases as well. This follows the National Company Law Appellate Tribunal’s (NCLAT) ruling in December that provided more clarity on the audit regulator’s retrospective jurisdiction.
Source: The Financial Express
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