The National Financial Reporting Authority (NFRA), the regulatory body overseeing listed and large unlisted companies in the country, is scrutinizing the audit and non-audit services provided by the Big Four network and other firms to their clients, reported TOI.
The concern has been raised in numerous inspection reports published by the agency, as well as in at least six disciplinary actions it has undertaken. The regulatory body perceives a conflict of interest or independence concerns in the services performed by these firms.
While NFRA does not have its own guidelines, it goes by the provisions of the Companies Act and the Institute of Chartered Accountants of India’s audit standards and guidelines, including the Code of Ethics, which lists out possible threats, including those related to self-interest, self-review, advocacy, familiarity and intermediation.
In certain instances addressed by the regulatory authority, disciplinary measures were taken due to multiple infringements. For example, in some cases, the firm exceeded the specified limit for earnings from non-audit services. Additionally, there were occurrences where the cap on revenue from a single client was violated.
In one case the partner of a firm and related entities had a large shareholding in one of the companies that was audited, which NFRA believes is a conflict of interest.
These occurrences have been identified not only in numerous smaller firms but also in certain network affiliates of the Big Four, drawing scrutiny. In a recent inspection report, the NFRA determined that Walker Chandiok & Co, Grant Thornton Bharat, Grant Thornton Advisory, and Grant Thornton International are considered “‘directly or indirectly’ related” entities, despite the firms denying any connection.
NFRA has also found instances of firms undertaking prohibited non-audit work through a web of their affiliates. In certain cases, such as BSR & Co, the firm did not provide details of KPMG network entities, and non-audit services provided by those entities to audit clients.
There are certain services such as management or tax-related work that is allowed, the corporate affairs ministry as well as NFRA are of the view that the fee structure allows for possible conflict of interest, especially as the payment for non-audit work can be front-loaded or staggered as the guidelines do not provide for a framework over a period of time.
(With TOI inputs)
