NFRA’s 2024 Inspection of Singhi & Co.: Key Findings on Audit Quality and Compliance

1. Background and Regulatory Context

Under Section 132 of the Companies Act, 2013, the National Financial Reporting Authority (NFRA) is entrusted with:

  • Monitoring compliance with Standards on Auditing
  • Overseeing the quality of services rendered by professionals responsible for such compliance
  • Recommending improvements to enhance audit quality

Exercising these powers, NFRA carried out an audit quality inspection of M/s Singhi & Co. (Firm Registration No. 302049E) for the financial year ending 31.03.2024. The inspection covered both:

  1. Firm-wide quality control systems (with reference to SQC 1, Code of Ethics and applicable laws), and
  2. Specific audit engagements, focusing on selected high-risk areas.

The public document summarises NFRA’s final findings after considering detailed responses and explanations submitted by the firm. Confidential or proprietary content identified by the firm has been excluded from the public version.

2. Scope and Focus of the NFRA Inspection

2.1 Nature of the Inspection

NFRA’s inspection programme was not intended to rate or certify the overall performance of the firm. Rather, it was designed to:

  • Assess whether the firm’s system of quality control is sufficiently designed and effectively implemented
  • Test compliance with Standards on Auditing and SQC 1
  • Identify deficiencies and opportunities for improvement in the audit process

NFRA made it explicit that such inspections:

Do not aim to identify every possible weakness or review all aspects of each audit engagement, nor do they provide absolute assurance about the quality of the firm’s work.

2.2 Selection of the Firm and Engagements

For FY 2024, NFRA selected audit firms based on multiple risk indicators, including:

  • Information filed in Form NFRA-2
  • Degree of public interest (size, composition, and nature of the firm)
  • Number and profile of companies audited
  • Complexity and diversity of financial reporting by audited entities

M/s Singhi & Co. was selected under this risk-based framework.

For this firm, NFRA:

  • Chose a sample of three statutory audit engagements relating to financial statements for the year ended 31.03.2024
  • Designated two thematic focus areas for each engagement:
    • Revenue Recognition
    • Loans & Advances
  • Added a third engagement-specific risk area for each file based on the assessed risk of material misstatement

NFRA clarified that this three-engagement sample is not statistically representative of the firm’s full portfolio of audits.

2.3 On-Site Process and Methodology

An entry meeting with Singhi & Co. was held on 15.09.2025 at NFRA’s office. During this, the firm presented an overview of:

  • Governance and management structure
  • Internal policies and procedures
  • Firm-wide quality control framework
  • Audit methodology and tools
  • Ethical guidelines
  • IT systems and related processes

On-site inspection took place over five days in November 2025 and involved:

  • Interviews and discussions with partners and engagement team members
  • Walkthroughs of key processes
  • Review of firm-level policies
  • Detailed examination of the three selected audit files

NFRA emphasized that the observations represent areas for improvement and do not, by themselves, necessarily amount to a blanket adverse assessment of overall audit quality, unless so specified.

3. Executive-Level Observations: Key Deficiencies Identified

NFRA’s final inspection report highlighted several systemic and engagement-specific issues. The principal firm-wide findings are:

  1. Personal independence monitoring was not adequately verified or monitored.
  2. Audit documentation practices, especially archival controls and electronic records, were weak.
  3. Consultation policies were not sufficiently detailed and documentation of consultations lacked depth.
  4. Performance evaluation mechanisms did not embed clear audit-quality metrics.
  5. Inconsistent methodologies and practices across engagements, especially for sampling, documentation, and confirmations.
  6. In one unlisted company audit (Company A), the audit opinion was considered inconsistent with SA 705 (Revised) requirements and not supported by sufficient appropriate audit evidence.

The subsequent sections elaborate these in more detail.

4. Firm-Wide Quality Control System: Major Issues

4.1 Personal Independence Requirements

Under SQC 1 (Paragraphs 17, 18, 40, 88), a firm must have policies and procedures that:

  • Safeguard independence of the firm and its personnel
  • Include effective monitoring mechanisms and a process to deal with non-compliance
  • Ensure the quality control system is both appropriately designed and operating effectively

NFRA noted the following:

  • The firm obtains annual independence declarations from partners and staff, along with engagement-specific confirmations.
  • Policies exist regarding financial interests, borrowings, relationships with audit clients, and disciplinary action.

However:

  • There was no verification or periodic checking of partners’ and staff investment-related independence declarations.
  • Absence of verification rendered parts of the disciplinary framework effectively non-operational, since breaches could not be reliably detected.

NFRA concluded that:

The review controls surrounding personal independence were not effectively implemented. The firm must redesign and enforce a monitored system that verifies the accuracy of declarations, maintains a violation history, and prescribes concrete disciplinary consequences (including financial sanctions and impact on careers) for repeated breaches.

4.2 Audit Documentation and Archival Controls

SQC 1 (Paragraphs 77 and 79) and SA 230 require that firms:

  • Maintain engagement documentation with confidentiality, safe custody, integrity, accessibility, and retrievability
  • Implement controls that track creation, modification, and review
  • Prevent unauthorised alteration of engagement documentation

NFRA found several weaknesses:

  1. Paper-Heavy, Fragmented System

    • Files are mostly paper-based, with engagement teams using differing numbering/indexing methods.
    • Physical file-movement registers are incomplete or editable, reducing reliability.
    • Inconsistent serial numbering and structure reduces traceability.

  2. Loss of Native Electronic Evidence

    • Evidence originally generated in Excel, Word, PDF, emails etc. is printed and archived only in paper form.
    • Metadata, formulae, links and other properties embedded in native files are lost, undermining evidentiary value.