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NFRA seeks client details from auditors

The audit regulator seeks info on audit processes, number of clients, non-audit work done for them and fees.

, ET Bureau|
Updated: Dec 14, 2019, 08.28 AM IST
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All the top firms including KPMG, EY, Deloitte, PwC, Grant Thornton and BDO have been asked to submit the details.
MUMBAI: In an unprecedented move, the National Financial Reporting Authority (NFRA) has asked the country’s top audit firms to submit details of all clients and the audit findings related to them. The biggest audit firms in the country have been told to submit details about the audit processes, the number of clients, details of fees, the non-audit work done for these clients and details of audit qualifications on financial accounts. NFRA is the national audit regulator and part of the ministry of corporate affairs (MCA).

People with direct knowledge of the matter said the information submitted to NFRA would cover almost all the top companies and banks, both listed and unlisted, in the country. “NFRA is seeking too much information, some of the information is too sensitive and we need time to provide it to the regulator,” the audit head of one of the top Indian firms said.

NFRA, said another person in the know of the development, may be planning to introduce stricter regulations for auditors.

The elaborate questionnaire sent to them could be a part of such a move, the person said.

NFRA, which has taken over all the powers from Institute of Chartered Accountants of India (ICAI) to regulate auditors, could make regulations stricter for the audit firms.

“The focus is to create stricter regulations on the conflict of interest issue and to ensure that auditors are truly independent while giving audit opinion. Auditors work for the public at large, not necessarily for a company,” said another person in the know of the development. He added that there have been complaints that some audit firms also provide other services such as IT platform implementation and advice on mergers and acquisitions (M&A) for the company they audit.

“There seems to be a lot going on. Bigger players have some issues, smaller players seem to be having different problems,” he said.

All the top firms including KPMG, EY, Deloitte, PwC, Grant Thornton and BDO have been asked to submit the details. An email questionnaire sent to five of these firms did not elicit any response.

Spokesperson of BSR & Co, part of KPMG, said the firm is fully cooperating with NFRA on this matter. “The firm is constantly strengthening its quality processes, incorporating various learnings from experiences.”

One of the audit heads of a large audit firm said that while the focus seems to be on the big boys some of the smaller audit firms also need to be under scrutiny. “Just look at the way they operate,” he said, “You have firms that have one big client and almost all their revenues come from that client, so how do you expect them to have independence?” he asked.

Another CEO of a rather small audit firm said that qualifications given by the auditor too could create problems for a firm. “What we have seen is that most auditors are merely giving qualifications rather than taking a stand on an issue. NFRA asking details around this could mean that there could be some regulations on this particular issue, which may be a concern.”

An audit head with a multinational firm said that some of the questions could create problems for a few firms. One of the questions asks whether any part of the fees was accepted in any other currency and the rate of conversion used.

The development follows NFRA finding faults with Deloitte Haskins & Sells (DHS), the auditors of ILFS Financial Services Limited (IFIN), on Thursday in regards to complying with the standards of accounting. The NFRA investigation report said, “the audit firm did not have adequate justification for issuing the audit report asserting that the audit was conducted in accordance with the SAs (standards of accounting).”

NFRA is investigating auditing failures in some of the top companies recently.

Audit regulators globally follow such processes to achieve their objectives. NFRA is separately investigating some of the major audit failures in firms including IL&FS, ITNL, Infosys and PMC Bank, said people in the know.

The ICAI used to carry out quality review of some accounts every year, but seldom was any firm slapped with a fine. NFRA in April had asked ICAI to back off from investigating auditors in the IL&FS case and took it over.
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