New Delhi: The National Financial Reporting Authority (NFRA) has uncovered significant audit deficiencies in several major firms affiliated with global networks, including PwC, KPMG, EY, and BDO International. The inspections highlighted lapses in auditor independence, fraud risk assessment, documentation, and scrutiny of related-party transactions.
According to the inspection reports released on Monday, many audit procedures in these firms were not fully compliant with Indian auditing standards and regulatory requirements. These reviews form part of NFRA’s annual audit quality assessment, which evaluates the audit practices of leading firms.
“These inspections provide firms with actionable regulatory feedback early in the financial reporting cycle, helping them enhance their quality control systems,” the report stated. NFRA added that the exercise also aims to strengthen market integrity and protect investors and creditors.
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Independence Breach at PwC Firms
NFRA’s review of PwC network firms, including Price Waterhouse Chartered Accountants LLP and Price Waterhouse & Co Chartered Accountants LLP, found breaches of auditor independence involving six partners. Five partners from the PW & A network and one from the PwC network had acquired securities in the holding company of an audited entity.
While the firms had taken remedial measures, NFRA noted that such actions affect mandated independence requirements under SQC 1 and Section 141 of the Companies Act, 2013. The regulator recommended improvements in the updating and monitoring of the Central Entity System (CES) to prevent recurrence.
EY Affiliate Urged to Strengthen Monitoring
In the inspection of EY affiliate SRBC and Co LLP, NFRA noted that network policies prohibit non-audit services for clients under regulatory oversight. However, stronger monitoring mechanisms were recommended to ensure compliance in practice.
The report also flagged deficiencies in analytical procedures and evaluations of related-party transactions, including weaknesses in assessing arm’s-length pricing of shares and investments.
KPMG and BDO Firms Identified Weaknesses
BSR Affiliates Network, a KPMG affiliate, showed gaps in assessing fraud risk. The audit team’s evaluation of potential revenue misstatement was insufficient, and cash misappropriation risks were not fully addressed. NFRA also highlighted weaknesses in oversight of IT controls and management override risks.
BDO International affiliate MSKA and Associates exhibited governance and network-wide control deficiencies. NFRA advised tighter monitoring of non-audit services and mandated partner re-approval for any post-audit report modifications.
Ongoing Inspections and Next Steps
NFRA stated that the inspections covered major audit firms including Price Waterhouse Chartered Accountants LLP, Price Waterhouse & Co Chartered Accountants LLP, SRBC and Co LLP, MSKA and Associates, and BSR Affiliates Network. Reports for other firms are expected in the coming days.
The regulator emphasized that these inspections are intended to strengthen financial market integrity and protect investors and creditors. Continuous scrutiny and corrective actions are essential for improving audit quality and restoring confidence in India’s financial reporting framework.
