Auditing regulator NFRA flags deficiencies in audit works by 2 PwC firms

NFRA finds deficiencies in Price Waterhouse Chartered Accountant firms’ audits

India’s auditing regulatory body, the National Financial Reporting Authority (NFRA) has flagged deficiencies in certain audits conducted by two chartered accountant firms Price Waterhouse Chartered Accountants LLP and Price Waterhouse & Co Chartered Accountants LLP. The regulator, in 2024, conducted audit quality inspections of the two entities. It included a review of the remedial actions taken by Price Waterhouse Chartered Accountants LLP for the deficiencies reported in the previous report.

There was also a review of three selected audit engagements of financial statements for the year ended March 31, 2023. It focused on three audit areas — internal financial control over financial reporting on revenue, related party transactions, and impairment of non-financial assets, due to their inherent higher risk of material misstatement. In an 11-page report, the watchdog observed that Price Waterhouse Chartered Accountants LLP has committed that the issues relating to the independence policy noted in the previous inspection report will be updated.

In the inspection report in 2022, NFRA had advised Price Waterhouse Chartered Accountants LLP (PWCA LLP) to incorporate in its independence policy manual the mitigating measures to remove any ambiguity and avoid any unintentional non-compliance with the statutory framework in India. “During the current inspection, the onsite review of compliance conducted on 19.09.2024, along with the emails exchanged with PWCA LLP, revealed that the independence policy manual did not incorporate any further changes as advised.

“PWCA LLP in response to the draft inspection report stated that they were updating their independence policy to ensure compliance with the statutory framework in India,” NFRA said in the report dated February 13.

According to the NFRA report, in two engagement files selected for review in the current inspection cycle, a significant deficiency in the verification of related party transactions and arm’s length price testing has been observed. “The lack of sufficient documentation and the limited scope of testing raises questions about the quality and reliability of the audit conclusions,” it added.

Price Waterhouse Chartered Accountants LLP and Price Waterhouse & Co Chartered Accountants LLP are members of Price Waterhouse & Affiliates’ (PW&A). A domestic network of 11 chartered accountant firms, PW&A is registered with the Institute of Chartered Accountants of India (ICAI). PW&A Network firms are all members of the international network of PricewaterhouseCoopers International Ltd, according to the report.

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