The National Financial Reporting Authority (NFRA) has flagged concerns on the independence of EY-affiliate firm SRBC & Co LLP in its latest inspection report. The audit regulator has also said that the audit procedures performed by SRBC & Co for related party transactions (RPTs) were found to be “deficient”.
For instance, the NFRA said that SRBC & Co has not fully remediated the observations of the previous inspection report, and the firm didn’t provide information relating to non-audit services provided
by EY network entities to the firm’s audit clients. However, SRBC & Co informed NFRA of its proposal to amend its independence policy and also provided information relating to non-audit services provided by EY network entities to the firm’s audit clients.
“On account of substantial delay by the firm to provide complete information to the inspection team, it could not be verified if the firm is in full compliance with independence requirements given in section 141 and 144 of the Companies Act 2013, Standards on Auditing 220, and code of ethics,” the report said.
Further, the NFRA found out that in one sample case, the amount of non-audit fee of an EY network firm exceeded audit fees which might have created self-review threat and self-interest threat.
In the report, the NFRA has made a series of suggestions to SRBC & Co. This includes reconsidering its policy to exclude holding companies of the NFRA-regulated audit clients for the purpose of providing non-audit services. In addition, the SRBC has been asked to reconsider its policy pertaining to section 141 of the act. For instance, the companies act specifically uses the term “relatives” which has a wider meaning than the term “immediate family member” used by SRBC & Co.
“The firm should put in place a robust process to address all threats to independence, which may be created due to the exclusion of certain services from the term non-audit services,” the report said.
Besides this, the NFRA has said that in three engagements reviewed by the regulator, one or more audit procedures followed by SRBC had deficiencies. This includes not verifying the end use of the proceeds of the loans given by the company to its subsidiaries, not evaluating the basis of the management claim of arm’s length pricing of transactions with related parties, not evaluating management expert’s work, and incomplete RPT disclosures.
In an email reply to FE, SRBC said that it is 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,” the statement said.