The National Financial Reporting Authority (NFRA) has released six fresh inspection reports highlighting significant shortcomings in the functioning of major audit firms, including Deloitte Haskins & Sells, Walker Chandiok & Co, and Singhi & Co. 

The findings point to gaps in quality control frameworks and deficiencies in the execution of individual audit engagements.

In addition to these firms, the regulator also reviewed BDG & Co, CNK & Associates, and Umamaheswara Rao & Co. The inspections form part of NFRA’s ongoing effort to strengthen audit quality and ensure adherence to prescribed standards across the profession.

The reports provide a detailed assessment of each firm’s audit processes, focusing on governance structures, the robustness of internal quality control mechanisms, and systems for identifying and mitigating audit risks. NFRA emphasized that these annual inspections are aimed at evaluating whether firms are maintaining the level of diligence and independence required under the law.

This development follows a similar set of inspection reports released earlier this month concerning audit firms affiliated with global networks such as PwC, BDO, EY, and KPMG. The regulator has, in recent years, consistently expressed concern over the provision of non-audit services by audit firms to entities they also audit, flagging potential conflicts of interest.

In its latest observations, NFRA noted that the policy on non-audit services currently applies only to Deloitte’s India entities and lacks adequate safeguards to prevent prohibited services from being rendered by overseas network firms to Indian clients or their group companies. The regulator underscored that such arrangements could undermine auditor independence and compromise the integrity of financial reporting.

Responding to the concerns, Deloitte stated that it complies with the requirements laid down under Section 144 of the Companies Act, which governs the provision of non-audit services. The firm has also urged NFRA to issue clearer and more comprehensive guidance on what constitutes “management services” under the law, to ensure uniform interpretation and application across audit engagements.

In a separate report on Walker Chandiok & Co, NFRA highlighted issues relating to audit independence. It observed that the firm’s stance of not acknowledging its association with the Grant Thornton International network could have implications for compliance with independence norms under the Companies Act and the Standards on Quality Control (SQC 1). The regulator indicated that such positions may obscure the true extent of network affiliations, thereby affecting transparency.

NFRA reiterated that maintaining auditor independence remains a cornerstone of reliable financial reporting. It stressed the need for firms to adopt stricter controls and clearer policies to avoid conflicts of interest, particularly in cases involving multinational network structures.

The regulator’s continued scrutiny signals a broader push towards enhancing accountability in the auditing ecosystem. With repeated findings pointing to systemic gaps, NFRA is expected to intensify oversight and possibly introduce more detailed guidelines to ensure consistent compliance with auditing and ethical standards across the industry.

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