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NFRA issues guidelines on audit quality inspection

The National Financial Reporting Agency (NFRA) on Friday released audit quality inspection guidelines to further improve standards for auditors.

The inspection guidelines are based on the recommendations of the International Forum of Independent Audit Regulators (IFIAR), which includes auditors from 54 countries.

The NFRA selects audit firms for such inspections based on their own risk identification parameters, along with other factors such as company size. 

In some cases, audit firms are selected based on specific concerns highlighted by governments and other regulatory bodies.

“NFRA inspections are aimed at identifying areas and opportunities for improvement in audit firms' quality control systems,” the agency said in a statement on Friday. “The inspection consists of an enterprise-wide audit quality review (SQC1) and a test-check-based individual desk review to assess the level of compliance with applicable audit rules. 

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Big 4 affiliate firms continue to lead audit business in India

Three of India's four largest companies, EY, KPMG and affiliate Deloitte Group, are within reach in the audit rankings at the end of the September quarter, according to an ET analysis of all listed companies.

In India, the 'big four' companies perform auditing work through their affiliates. EY Group is the market leader with 153 mandates and KPMG Group audits his 147 companies. 

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Annual transparency report may be must for audit firms

The National Financial Reporting Authority (NFRA) has proposed to require audit firms to submit an annual transparency report (ATR).

The report will contain material information about the audit firm's operational activities, management controls and ownership structure, the Audit and Accounting Oversight Office said Monday. The ATR also includes a description of the policies and procedures put in place by the audit firm to provide high quality audits.  

The move aims to increase transparency among audit firms and improve the quality of audits. These recommendations are based in part on international best practices implemented by independent auditors.

"The NFRA publishes an annual transparency report containing certain key information such as the auditor's business practices, controls, governance and ownership structure, as well as the policies and procedures required to conduct high quality audits. ' in an official statement by the NFRA.

The proposed disclosures are gaining weight amid concerns about conflicts of interest associated with the work of large audit firms. These companies provide both audited and non-audited services to companies. In most cases, audit firms were paid more for providing non-audit services to their clients. 

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Adani Group plans independent audit of group companies

India's Adani Group plans to hire one of the 'Big Six' accounting firms to assess its corporate governance and auditing practices following fraud allegations by short-selling firm Hindenburg. , the Mint reported on Monday.

The audit was commissioned after his Adani Enterprises Ltd, an entity in the group, completed its subsequent public offering, and legal options were sought based on its findings, he said. I quoted two people I knew firsthand about him. 

The audit will include a review of certain related-party transactions, accounting practices and compliance with the company's corporate governance standards, and will also verify whether Hindenberg's claims are accurate, the report said.

Adani did not immediately respond to a request for comment by Reuters after normal business hours.  

Adani Enterprises' $2.5 billion secondary equity sale, which began Jan. 27, closed midway through its second day Weak investor sentiment. The share closed at Rs. 2,892.85,7. This is below the lower end of the offer price range of Rs. 3,112. The upper band is 3,276 rupees.  

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Artificial Intelligence to be a game changer in government audit space

(AI) will become a game-changer in the field of public audits as it contributes to faster and more detailed analysis at both planning and execution stages, India's Commissioner General of Accounts (CAG) G.C. Murmu said Tuesday. said to The potential benefits of applying AI techniques to the audit process are significant and have already been identified through multiple use cases, he said in his closing remarks at the SCO-SAI leadership meeting here.

Murmu emphasized that with the shift to electronic processing and computerized systems in public sector organizations, it is again important for SAIs to develop the skills necessary to examine the control of information systems. 

The team effectively monitors third-party activity and ensures that those activities are governed by comprehensive agreements, he said, adding that the team is standardizing incident management, problem management, and IT security policies. I added that I am also checking the procedure. In addition, ensure documentation is updated and accessible for knowledge transfer and exit management. The audit also covers user access controls, including multi-factor authentication, to ensure organizations comply with the overall regulatory framework mandated for cybersecurity, he added. Recognizing the SCO member's SAI initiative, Mr. Murum has integrated new technology into audit work, improved the efficiency and effectiveness of audits, and promoted transparency and accountability in government. 

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India’s biggest banking fraud – DHFL

This fraud was first discovered in 2019 when it was claimed that the company systematically defrauded banks by siphoning off funds. The banks' credit was systematically disbursing funds as secured and unsecured loans to sham entities or pass-through entities that were allegedly related to DHFL's primary stakeholders through associates or proxies.

These funds were later redirected to DHFL promoters via entities controlled by them. Cobrapost made the initial accusation in February 2019, and the lender banks later appointed KPMG for a 'Special Audit Review' based on this accusation. According to KPMG's findings, large sums of money were diverted to multiple companies (via loans and advances) that shared "interconnected entities and commonalities" with the DHFL promoters. These funds were later used to purchase stocks and bonds.

The KMPG special audit review also revealed that the company books showed 66 entities with commonalities with DHFL promoters were disbursed Rs 29,100 crore, with Rs 29,849 crore outstanding.

The majority of these entities' and individuals' transactions were in the form of land and property investments. Furthermore, DHFL had a major outstanding of Rs 11,909 crore, which was due to loans and advances totaling Rs 24,595 crore given to 65 entities between April 1, 2015, and December 31, 2018.The promoters of DHFL also disbursed Rs 14,000 crore in project finance, but this was recorded in the company's books as retail loans. The company also displayed an inflated retail loan portfolio of approximately 1,81,664 retail loan accounts that were false and non-existent, with a total outstanding of Rs 14,095 crore. These loans were recorded in separate 'Bandra Books' in a separate database before being merged with OLPL (Other Large Project Loan) accounts. Further investigation revealed that the OLPL category was largely of non-existent retail loans totaling Rs 14,000 crore.

The news of this fraud shook the financial world, and the fallout was felt in the stock markets. After months of false assurances from the company, the UBI-led consortium of banks finally filed charges against the Wadhawan brothers. They are currently imprisoned in connection with CBI and ED investigations.