NFRA emphasise the separation of audit and non-audit services. The independence of audit services comes from creating awareness. NRFA chairperson spoke to the media that the second inspection showed improvement in the Big Five firms. The fixing of the audit-related issues and maintaining the standards improves the client relationship. The blog throws light on the expectations of NRFA and the growth of Big Five firms. Big five firm names are Walker Chandiok & Co, Deloitte and Touché, Ernst and Young, PricewaterhouseCoopers, and KPMG.
Why Big Five firms are the global powerhouses?
The following points elucidate the secret behind the success and growth of Big Five audit firms.
- Big Five firms have invested in the development of the technology global infrastructure. The infrastructure helps the big five firms to acquire new clients and services. Apart from audit services, the Big Five firms offer technology, legal and management consultation. Working with diversification helps the big four firms to tap into new services and offer competitive services.
- Big Five firms work with clients for long periods. An understanding of the business intricacies is essential for a service provider. Big Four firms focus on professional development and recruitment. The fresh graduates, experienced experts and training of the employees are the pulse of maintaining a quality human resource group.
- Big Five firms give importance to innovative ideas. The firms invest large funds in research and development. Big Four firms have partnerships and collaborations with start-ups to bring new technologies to the clients. Innovation is the quality that helps the companies to differentiate the business from competitors.
- Big Four consulting firms have entered into new markets with mergers and acquisitions. Mergers and acquisitions pose questions to the integration of systems and cultures. In 2018, Deloitte merged with Monitor Group.
- Big Five firms adapt to the changing business environment with a diverse workforce and investment in new technology.
- The quality, reputation, resources and ability to attract top talent are the secrets to the success of Big Five firms.
- According to the 2023 data, Indian Big Five audit firms oversee the audit process of 551 listed companies in NSE.
- In NIFTY-500 companies, the Big Five firms are overseeing 310 companies out of 498 companies.
- The 2023 audit data shows the following business dealings of the big five companies: EY is taking care of 146 companies, KPMG affiliates work for 136 companies, Walker Chandiok & Co. work for 85 companies, Deloitte work for 124 companies, PWC affiliates work for the audit service of 65 companies.
NFRA 2023 inspection:
The inspection report from NFRA dated 29, December 2023 checked the three main audit areas. The three areas are the trade receivables, investment and the revenue. The NFRA conducted an entry meeting with the officials of M/S Walker Chandiok & LLP in November 2022. The inspection methodology was walkthroughs, meetings, interviews and presentations. The NFRA clearly mentioned that the inspection was to focus on improvement and not taken as a negative assessment. The audit report of Deloitte and Touche audit firm emphasises risk reassessment, independence, and documentation protocol and governance structure.
NFRA 2024 Inspection:
The first inspection report of NFRA is out in December 2023. The second inspection report is about to be completed in October of 2024. The second inspection is the continuation of the first one. The NFRA statement shows that the mentioned shortcomings and areas of improvement have to be checked in the second list. The firms listed in the second round of inspection are as follows: BSR & Co, SRBC & Co, Deloitte Haskins & Sells, Price Waterhouse Chartered Accountants and Walker Chandiok & Co. The audit firms have taken measures to follow the rules of NRFA. The awareness of independence is the point of focus of NFRA.
The prime issue raised by NFRA is the violation of section 144 of the Companies Act. The section talks about the non-audit services. A spokesperson from Walker Chandiok & Co. said that the company is striving hard to strengthen the checks, balances and documentation and ensure to maintenance of high-quality audits. Big Five firms said the initiatives of checking authority NFRA serve as a constructive exercise to improve the quality of auditing services. The regulator is acknowledging the investment of Big Five firms in people, infrastructure and technology.
The affiliates of BST and KMG are not providing non-assurance services to the audit clients. This statement is said by the audit head Sudhir Soni. He says that the decision is in response to the observation of NFRA to address the conflict of interest. The guidelines of NFRA help for building trust and relationships with the clients. The inspection of NFRA provides awareness to the big five firms to understand the perspective of the regulatory authority in the auditing profession.
The audit firms and the network associates have self-declared the policy of maintaining records of non-audit services and audit services. The network associates prohibit the provision of non-audit services to the clients in the list of audit services.
Final Words:
From 2017 to 2022, the big four firms have bagged an amount of 500 crore with Indian central government assignments. The audit engagement and remuneration depend upon the size, geographical presence, business model, complexity, and regulatory oversight. The audit fees outside India are in the range of 0.02 to 0.04 per cent of the revenue. The audit fees for the Indian operation are around 0.01 per cent of the revenues. The Audit firms want to increase the audit fees to match the stress, risk and competition. The quality and audit fees motivate the investors and employees. To attract talent and investment, it is essential to maintain the quality and increase the audit fees.
