NFRA flags ‘deficiencies’ in audit work of top firms
March 16, 2026
India’s audit regulator NFRA has identified multiple procedural gaps in inspections of top audit firms, highlighting issues in audit documentation, independence compliance and risk evaluation.
The National Financial Reporting Authority (NFRA) has flagged several “deficiencies” in the work of major audit firms in India, including two PwC network firms, four KPMG affiliate firms, one EY affiliate firm and a BDO International network firm. The regulator, in its inspection reports released on Monday, said these firms followed certain procedures that went against the auditing norms followed in the country.
In the case of PwC network firms, the NFRA said that during the inspection, it observed the firm detected a breach of independence involving five partners of the PW&A network and one partner of the PwC network. The breach involved acquiring securities in the holding company of a firm for which the audit work was accepted.
“While the firm had already taken remedial actions, yet considering that such matters impinge upon the mandated independence requirement under SQC-1 and Section 141 of the Companies Act, 2013, the audit firm is advised to improve the timely updation and monitoring of the central entity system (CES),” the report said.
In one instance, the report said that the PwC network firm failed to disclose and evaluate the impact of a CBI case against the holding company of an audited firm which was not in compliance with auditing standards. PwC told NFRA that “a more explicit evaluation could have been included in the audit file as regards the impact of the CBI inquiry on the support letter.”
The NFRA report noted that even though EY-affiliate SRBC & Co has a policy that EY network firms will not provide non-audit services to NFRA-regulated audit clients, the regulator said there is a need for an appropriate monitoring mechanism to ensure the firm’s policies and procedures on firm-wide independence operate effectively and are complied with in practice.
Further, the NFRA found issues with the disclosures and analytical procedures performed by the audit team of the EY affiliate firm in individual audit engagements.
In its response, SRBC & Co said that “it will continue to take necessary actions, where required, for remediation of the observations in accordance with NFRA rules.”
KMPG report points out responses to the risk of fraud in revenue
A separate report on KPMG affiliate firms pointed out that the engagement team’s assessment and responses to the risk of fraud in revenue did not explicitly address the risk of revenue understatement.
“The engagement team’s fraud risk assessment relating to cash misappropriation was insufficient, as it focused solely on the possibility of employee-level fraud and did not consider the significant risk of cash siphoning by senior management or brand owners. Given that brand owners exercised full control over the entity’s IT systems, the risk of management override of IT controls was elevated and required explicit evaluation,” the report stated.
Additionally, NFRA found lapses in the audit documentation of the BSR affiliates network. In one particular engagement, audit files contained duplicate workpapers, unexplained manual calculations, and an unreconciled difference that was not evaluated or included in the misstatements summary.
What did BSR affiliate network say?
Responding to the regulator, the BSR affiliates network said that “with regard to other observations in respect of enhancement of audit documentation and review mechanism, we take note of NFRA’s feedback and remain committed to take necessary steps, as required.”
Further, NFRA said that MSKA & Associates, a BDO International affiliate, is required to strengthen network-wide controls over the provision of non-audit services and ensure mandatory re-sign-off by the engagement partner for any post-issuance modifications. “The Whistleblower Committee, as mandated by policy, needs to be formally constituted to oversee and investigate complaints,” the regulator said.
As part of its annual inspection exercise, NFRA plans to look into the audit work of 10 large audit firms this year. The overall objective of audit quality inspections is to evaluate the audit firm’s compliance with auditing standards and other regulatory and professional requirements, said the NFRA statement.
[The Financial Express]
