The National Financial Reporting Authority (NFRA) has found “significant deficiencies” in the audit work of two PwC network firms — Price Waterhouse Chartered Accountants LLP and Price Waterhouse & Co Chartered Accountants LLP.
The regulator said in an inspection report that the two firms didn’t do sufficient documentation for clients where they were statutory auditors. Also, the “limited scope” of arm’s length price testing by them raises questions on the quality of audit conclusions drawn by them, the NFRA observed, after inspections carried out at three individual audit engagements of the firms.
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In one particular case, the regulator highlighted five areas of lapses, including insufficient documentation, inappropriate comparison, lack of qualitative analysis, no evidence of independent chartered accountant (CA) review, and non-compliance with board meeting rules.
For instance, NFRA noted that one of the audit firms concluded that RPTs were at arm’s length, but the audit working papers (AWPs) lacked sufficient evidence to support this. Similarly, the firms made price comparisons with unrelated parties but the specific goods and services compared were not documented.
In its response to NFRA, the PwC network firms said that they have the NFRA’s observations on the individual audit engagements with regard to sufficiency of documentation around testing of arm’s length pricing of transactions with related parties. “As part of our continuing improvement, we are considering how to further enhance our audit file documentation, including recording details of audit procedures performed and noting the identifying characteristics of client’s documents inspected or extracts thereof,” the firms said. PwC India didn’t respond to the FE’s email queries.
According to NFRA, the analysis was primarily focused on pricing and did not adequately consider other qualitative aspects like terms and conditions, guarantees, and bad debts as required by Ind AS 24. Also, the claims made by PwC firms that an independent CA had reviewed RPTs for arm’s length pricing, but no evidence of this report was found in the audit file, it said.
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Further, NFRA noted that the audit firm did not adequately verify compliance with Rule 15(1) of the Companies (Meetings of Board and its Powers) Rules, 2014 which requires the manner of determining the pricing and other commercial terms in board meeting agendas for RPTs.
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