NFRA highlights audit firms’ weakness, areas requiring improvement
Mar 28, 2025
National Financial Reporting Authority's inspection reports urge SRBC, Walker Chandiok & Co., and Deloitte Haskins and Sells to improve audit practices and independence. The firms expressed commitment to enhancing audit quality and addressing compliance issues.
The audit watchdog National Financial Reporting Authority (NFRA) has highlighted specific aspects of practice that auditors SRBC & Co. LLP, Walker Chandiok & Co. LLP and Deloitte Haskins and Sells LLP need to improve in a series of reports prepared after visiting the firms and inspecting specific audits conducted by them.
NFRA’s inspection reports are not disciplinary in nature but offer audit firms an opportunity to improve their systems and procedures.
NFRA said in a report released on Friday that Walker Chandiok & Co., which the regulator previously reported as part of Grant Thornton International Ltd, needs to comply with auditor independence requirements specified in Section 144 of the Companies Act.
The watchdog said that Walker Chandiok & Co., in its communication to NFRA, however, has maintained that it is not a member of the GTIL network. The audit firm has not remediated the issue related to the auditor’s independence and audit documentation noted in the previous inspection report, NFRA alleged.
In response to a query from Mint, a spokesperson for Walker Chandiok & Co. said that the firm is committed to upholding the highest financial reporting standards.
Accountability and integrity
“We believe in accountability and integrity towards our stakeholders and are committed to enhancing audit quality to protect public interest and continue to discharge our professional responsibilities in the nation’s economic growth and development,” the spokesperson said.
The spokesperson said the current inspection focused primarily on remediating observations in the 2022 inspection report, which was issued in December 2023, but it also covered audits for engagements conducted prior to the issuance of the report.
“We have consistently upheld the highest standards of audit quality and demonstrated our commitment to auditor independence by being the first to impose a self-regulated embargo on providing permissible non-attest services to listed audit clients, including their holding and subsidiary companies in July 2019,” the spokesperson said.
“We have now decided to extend this embargo to all NFRA-covered audit clients instead of only to the listed audit clients,” the spokesperson said.
The statement said that since the previous report, the audit firm has made significant investments in technology and refined its policies, which it believes will go a long way in enhancing audit quality.
The regulator alleged that SRBC is a member of two networks: Ernst & Young Global network and SR Batliboi & Affiliates (Indian network/SRB network). NFRA alleged that its previous inspection report of 2023 had observed that the audit firm’s independence policies do not recognize the relationship between EY network and the SRB network, resulting in non-compliance with two sections of the Companies Act 2013.
Independence policy
NFRA said that the audit firm informed the regulator of its proposal to amend its independence policy in response to the regulator’s draft inspection report. However, on account of a substantial delay in getting complete information, the regulator could not verify whether the firm is in full compliance with the independence requirements specified in the Companies Act, the regulator alleged. NFRA made a first impression that the firm should implement a robust process to address all threats to independence.
SRBC said in response to a query from Mint, “We are committed to delivering sustainable, consistently high-quality audits in accordance with applicable auditing standards and independence requirements. We consider NFRA's recommendations to be constructive in supporting the objective of enhancing audit quality."
In the case of Deloitte Haskins and Sells, NFRA said that the audit firm adopted a revised network agreement and has improvised the procedure to ensure personnel independence. NFRA said it recognises that the audit firm’s voluntarily adopted guidelines regarding not providing prohibited non-audit service is a first step. Still, NFRA expects full compliance with Section 144 of the Companies Act.
“We believe NFRA’s inspection process serves an important role in the achievement of our shared objectives of enhancing audit quality and serving investors and public interest. We are committed to continuous enhancement in audit quality and will be unwavering in our efforts towards this objective,” Deloitte said in its communication to NFRA, which is reproduced in the inspection report.
Queries emailed on Friday to Deloitte Haskins and Sells seeking comments for the story remained unanswered at the time of publishing.
[Mint]
