NFRA Audit Quality Inspection Report 2024: CNK & Associates LLP — Findings, Gaps, and the Path Forward
Overview of the Inspection
The National Financial Reporting Authority (NFRA) exercised its statutory mandate under Section 132 of the Companies Act, 2013 to conduct an audit quality inspection of M/s CNK & Associates LLP (Firm Registration No. 101961 W/W – 100036), culminating in Inspection Report No. 132.2-2024-09 dated March 27, 2026. The inspection scrutinized both firm-wide quality control frameworks and individual audit engagement files, covering statutory audits of financial statements for the year ending March 31, 2024.
The primary objective was to assess whether the audit firm's internal systems, policies, and actual engagement conduct were aligned with the requirements of Standard on Quality Control (SQC 1), the Code of Ethics, applicable Standards on Auditing (SAs), and relevant provisions of the Companies Act, 2013. The inspection was not designed to provide a comprehensive or absolute assessment of audit quality across all engagements — it was targeted and risk-based, aimed at surfacing areas requiring improvement.
Important Note: Findings in NFRA inspection reports represent identified improvement opportunities and should not be read as a holistic negative evaluation of an audit firm's capabilities unless expressly stated.
About M/s CNK & Associates LLP
Established in 1936, CNK & Associates LLP maintains three offices within India and two international offices located in Dubai and Abu Dhabi. Its broader network, registered with the Institute of Chartered Accountants of India (ICAI) as M/s CNK & Affiliates (CNK Network), encompasses four additional firms spread across six more Indian locations.
The firm comprises 32 partners, with a further 21 partners in network firms, supported by a workforce exceeding 1,000 professionals. During the period under review, the firm held 53 audit clients that fall within NFRA's regulatory oversight.
Inspection Scope and Methodology
Selection Criteria
The firm was selected for inspection based on parameters including its size, the volume and complexity of audit engagements handled, the diversity of sectors covered, and other public interest indicators. Three individual audit engagement files — drawn from the Banking, Shipping, and Pesticides sectors — were selected on a risk-based approach for detailed review.
Focus Areas Per Engagement
For each of the three selected audit engagements, two standard high-risk audit areas were examined:
- Revenue Recognition
- Loans & Advances (Assets)
Additionally, a third engagement-specific focus area was selected for each engagement:
- Provisions (for Company A)
- Going Concern (for Company B)
- Trade Receivables (for Company C)
Process
The entry meeting took place on September 16, 2025 at the NFRA office. On-site inspection was carried out between October and November 2025, involving walkthroughs, discussions, document reviews, and interviews with both leadership and engagement team personnel. A draft inspection report was circulated to the firm on January 19, 2026, with the firm submitting its response on January 29, 2026. The final report was published on March 27, 2026 under Rule 8 of the NFRA Rules, 2018.
Part B: Firm-Wide Quality Control System — Observations
A. Leadership Responsibilities for Audit Quality
The firm's Principal Partners hold overall leadership responsibilities, with individual partners informally overseeing key functional areas such as Independence & Ethics, Audit Quality, Human Resources, IT Systems, and Monitoring.
Key deficiency identified:
- There was an absence of formal documentation covering:
- Nomination of leaders for Key Functional Areas
- Suitability assessments and formal communication of such appointments within the firm
- Governance and management decisions, which were being taken on an informal consultative basis
- Circulation of updated
SQC 1policy to partners, staff, and affiliates
(Reference: Paragraphs 9 to 13 of SQC-1)
Firm's response: The firm acknowledged these lapses and confirmed that formal minutes of partners' meetings have been maintained since April 2024, with commitments to document nomination processes and ensure structured communication of SQC policy updates going forward.
B. Independence Requirements
Firm-Level Independence
NFRA identified that the firm was not maintaining documented evaluations of independence threats — including self-interest, self-review, and familiarity threats — before:
- Accepting non-audit services for existing audit clients
- Accepting audit engagements where an affiliate or network firm was already providing non-audit services to the same entity
(Reference: Paragraph 18 of SQC-1)
In practice, such evaluations were being conducted through informal channels including WhatsApp group messages and telephone calls, with no formal documentation, approval trail, or written evidence of compliance.
Additionally, the firm had no centralized or consolidated record of non-audit services being rendered by its network affiliates to audit clients. This created a risk of non-compliance with Section 144 of the Companies Act, 2013, which restricts certain non-audit services to audit clients.
Firm's response: The firm committed to implementing a CRM-based application for real-time tracking of services across the network. As an interim measure, a centralized spreadsheet was compiled, and formal partner declarations prior to new client onboarding have been proposed.