The National Financial Reporting Authority (NFRA) will release the inspection reports on the top 10 audit firms, including the Big Four, by the end of March 2026, according to a senior official.
“The inspections this year focus on areas like revenues and loan & advances,” the person added, requesting anonymity.
The regulator published 12 probe reports of audit firms since it began the exercise in 2023.
“Bigger firms like BSR & Co, SRBC & Co, PWCA, Deloitte Haskins & Sells, Walker Chandiok & Co and MSKA & Associates have a combined market share of about 60%, so we inspect them annually. Oversight is necessary due to their size. Beyond these six firms, we pick up others intermittently. We have added four new audit firms this year,” said the official.
Typically, inspection reports consist of a firm-wide quality inspection covering areas like leadership, governance, and independence. The other part is the inspection of individual audit engagements for these firms. The official noted an improvement in the overall quality of work within these audit firms.
Closing the Gaps
“In the first round of inspection, the domestic audit firms were reluctant to accept their association with global network firms. Some of these firms had software loopholes that allowed changes in the audit file even after the issuance of audit reports, which is strictly not permitted under the rules. In the second round (last year), we saw some improvements. But there’s still room to do better in areas like documentation of policies related to non-audit work, independence threat, and related party transaction (RPT) disclosures,” the official said.
Safeguarding Independence
Section 144 of the Companies Act restricts statutory auditors from providing nine types of non-audit services, including accounting and bookkeeping, internal audit, actuarial services, investment banking services, and management services. As per the Act, auditors cannot provide non-audit services to companies where they are appointed as statutory auditors because it undermines auditor independence and creates a self-review threat.