The National Financial Reporting Authority (NFRA) has issued inspection reports on Deloitte Haskins & Sells and Walker Chandiok & Co (WCCL) where the regulator has found gaps in the guidelines for non-audit services being followed by these firms in addition to the deficiencies in audit procedures for related party transactions (RPTs). In addition, the NFRA has pointed out a bunch of issues that compromise the independence of WCCL as auditor.
For instance, the NFRA noted that WCCL has not remediated the issue related to the auditor’s independence, audit documentation, and EQCR (engagement quality control review), as noted in the previous inspection report.
“In the absence of any clear recognition by WCCL that all the network entities of Grant Thornton International (GTIL) of which they are a part, are needed to be considered while determining the compliance with the independence requirements, there is no assurance that WCCL complies with the independence requirements of the Companies Act 2013, the code of ethics and SQC1. The firm should ensure full compliance with Section 144 of the Companies Act, 2013,” the report said.
Further, the NFRA’s inspection team selected a sample of 13 cases to assess compliance with independence requirements. Of these, three cases revealed instances where services provided by Grant Thornton Bharat (GTBL) and its related entities to WCCL’s audit clients compromised WCCL’s independence.
In a reply to FE, WCCL spokesperson said that the current round of inspection focussed primarily on the remediation of observations in the 2022 inspection that was issued in December 2023, which obviously could not have been remediated in the March 23 audits. “We value the inputs of NFRA and have made suitable edits to policies and processes to continually improve towards our stated goal of becoming the gold standard in auditing in India,” the spokesperson said.
In case of Deloitte, the NFRA said even though the audit firm had voluntarily adopted the non-audit service (NAS) guidelines for not providing prohibited non-audit services, these guidelines are applicable to only Indian firms of the network (Deloitte Haskins & Sells and its affiliates) and not to all of the participating firms of the international network (Deloitte Touche Tohmatsu). This, as per NFRA, is a first step but the regulator expects full compliance to the Section 144 of the companies act.
The Section 144 prohibits statutory auditors to provide nine types of NAS, including accounting and book keeping, internal audit, investment banking services, any other kind of services as may be prescribed, etc.
In addition, the NFRA found out that Deloitte was not performing sufficient appropriate audit procedures for the verification of RPTs being on arm’s length basis. “Also, inadequate evaluation of competence, capability, objectivity and work of the auditor’s expert have been observed,” NFRA said.
In a statement, Deloitte is committeed to continuous enhancement in audit quality, and will be unwavering in its efforts towards this objective. “This commitment is reflected by the fact that all the observations of NFRA in their inspection report 2022 have been addressed by the firm,” the statement said.