The observations are not disciplinary in nature, but an opportunity for the auditors to improve their systems and procedures. The inspections are part of the regulator’s efforts to monitor quality of service by audit firms, assess their compliance with auditing and accounting standards, and suggest improvements.

In its report, the regulator highlighted the need for adhering to auditor independence requirements in certain cases, and red-flagged gaps in documentation in other cases.

NFRA said that SRBC’s policies and procedures for ensuring integrity of audit documents are not fully in accordance with some requirements of a quality control standard. The finalized and signed-off audit documentation is editable at any time before archival without affecting the sign-offs, NFRA alleged. It also said that the independent policies of the audit firm do not recognize the direct and indirect relationship between SRBC and members of the international network of Ernst & Young Global Ltd (EY). This has resulted in violations of Sections 144 and 141 of the Companies Act, 2013, NFRA alleged. These sections deal with prohibited services and eligibility of auditors.

In a statement, SRBC said it is committed to sustainable, consistent, high-quality audits and consider NFRA’s inputs constructive. “With our strong focus on systems of quality control, governance, talent, tools and methodologies, we remain committed to upholding the confidence stakeholders place in us. We look forward to working with all professional bodies to serve public interest and maintain trust in the audit profession,”it said.

In the case of BSR & Co. LLP, NFRA alleged absence of formal documentation and deficient audit procedure relating to impairment of investment in the case of three out of five selected company audits. NFRA pointed out that the firm did not provide, during the inspection, details of KPMG network entities, and non-audit services provided by those entities to audit clients of the firm. So, the inspection team could not evaluate whether BSR is in full compliance with the independence-related requirements of the code of ethics and quality control standard, NFRA alleged.

A spokesperson for BSR & Co said the firm will cooperate with NFRA towards the shared objective of improving audit quality, building confidence and trust in the audit profession, and meeting responsibilities to investors and other participants in capital markets.

“NFRA’s inspection process provides us with an opportunity to constructively understand their regulatory perspective and to identify qualitative improvements to our systems and processes,” said the spokesperson in an emailed response to Mint. The firm said it has invested considerable effort in building a robust system of quality control to support compliance and applicable auditing standards. “We appreciate the recommendations and observations in the inspection report and will constructively engage with Honourable NFRA in evaluating and implementing further improvements to our policies and practices.”

In the case of Deloitte Haskins & Sells LLP, NFRA pointed out some gaps in documentation and also alleged that in one audit engagement, the audit firm provided non-audit services, which amounted to self-review threat. Deloitte informed the regulator that executing high-quality audits is its “number one priority” and addressed NFRA’s concerns in a letter addressed to it, the regulator’s report observed.

In the case of Price Waterhouse Chartered Accountants LLP, NFRA observed that the firm’s audit documentation is maintained in electronic format and some documentation, like external confirmations and signed financial statements, are kept in physical files, which should be in one place for better compliance. NFRA also observed certain inadequacies in the audit that the watchdog reviewed. NFRA, however, took note of the firm’s policy decision to voluntarily restrict provision of all non-audit services to the NFRA governed clients, their subsidiaries and their material overseas associates.

Queries emailed to Deloitte and Price Waterhouse Chartered Accountants on Friday evening remained unanswered till press time .