The National Financial Reporting Authority (NFRA) on Friday found certain lapses in the auditing-related activities of audit firm Walker Chandiok & Co LLP during detailed audit quality inspections.
The regulator initiated an audit quality inspection of Walker Chandiok & Co LLP in December last year and covered various aspects, including a review of firm-wide quality controls to evaluate their adherence to Standards on Quality Control (SQC-1) and review of selected audit documentation of the annual statutory audit of financial statements for the year ended March 31, 2021, as per the order.
The regulator has flagged several deficiencies, where the audit firm failed to adhere to some of the prescribed 'client acceptance and continuance' prerequisites, including verifying the client's integrity and recording the resolution of concerns.
NFRA observed that there was a discrepancy between the disclosures made by Walker Chandiok & Co LLP (WCCL) and Grant Thornton Bharat LLP (GTBL) to the US audit regulator regarding their 'audit related memberships, affiliations or similar arrangements'.
"During the inspection, the audit firm did not provide details of Grant Thornton International Ltd (GTIL) network entities, and non-audit services provided by those entities to audit clients of the firm.
"Consequently, the inspection team was unable to evaluate whether the firm is in full compliance with the independence-related requirements of the code of ethics and SQC 1," the report said.
One of the observations is the engagement quality control reviews conducted by WCCL's engagement quality control review (EQCR) partners exhibited significant deficiencies in documentation and did not conform to the firm's own engagement quality control policies as well as to the requirements SQC 1 and Standards on Auditing (SA) 220.
It was also observed that the firm had provided non-audit services prohibited under section 144 of the Companies Act, 2013, to the auditee companies, and provided assurance on related party transactions to the board of directors, and later on such transactions were audited by the firm, leading to a self-review threat, NFRA said.
In the case of the audit of some companies, the regulator observed that the ET (engagement team) did not properly evaluate the non-compliance with the limit on the number of two layers of companies under the rules, as per the order.
The firm also issued a qualified audit opinion (instead of 'Adverse' or 'Disclaimer of Opinion') disregarding the pervasive nature of the material misstatement.
The ET did not obtain sufficient appropriate audit evidence for non-provision of impairment losses on investment in subsidiaries that had serious issues of going concern and had relied on outdated and unsigned documents regarding financial support assistance purported to be issued by an overseas parent, it added.