Inspection Report: Deloitte Haskins & Sells & Affiliates 2024 · 132.2-2024-05

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सत्यमेव जयते

राष्ट्रीय वित्तीय रिपोर्टिंग प्राधिकरण

National Financial Reporting Authority

INSPECTION REPORT

2024

Audit Firms:
Deloitte Haskins & Sells LLP
Deloitte Haskins & Sells
Deloitte Haskins & Sells
(Deloitte Haskins & Sells & Affiliates)

Firm Registration No:
(FRN 117366W/W100018)
(FRN 008072S)
(FRN 015125N)
Inspection Report No.132.2-2024-05
27.03.2026

National Financial Reporting Authority,
$7^{\text{th}}$ Floor, Hindustan Times House,
18-20, K. G. Marg,
New Delhi 110001

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Contents

Executive Summary ................................................................................................................. 1
Inspection Overview ................................................................................................................ 2
Audit Quality Inspection Approach ....................................................................................... 3
Inspection Methodology .......................................................................................................... 3
Audit Firms Profile .................................................................................................................. 4
Acknowledgment ...................................................................................................................... 4
Review of Firm-Wide Audit Quality Control System-Compliance with Previous Years
Inspection Observations .......................................................................................................... 4
Independence Policy and Practices ............................................................................................ 4
Review of Individual Audit Engagement Files Focusing on Selected Areas of Audit ....... 5
(a) Loans & Advances ............................................................................................................... 5
i. Evaluation of Arm's Length .................................................................................................. 5
ii. Non-Compliance with Audit Committee Review Requirements and end use verification ... 5
(b) Other Areas .......................................................................................................................... 6
i. Evaluation of Expected Credit Loss (ECL) and Impairment .................................................. 6
ii. Extension of Credit Period to Related Party .......................................................................... 6
iii. Inclusion of Draft CARO in the MRL .................................................................................. 7
Chronology of Events .............................................................................................................. 8
Appendix A: Audit Firm's response to this inspection report ............................................. 9

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PART A

Executive Summary

Section 132 of the Companies Act, 2013 (the Act) mandates the National Financial Reporting Authority (NFRA), inter alia, to monitor compliance with Auditing Standards, to oversee the quality of service of the profession associated with ensuring compliance with such standards, and to suggest measures required for improvement in quality of the service. Under this mandate, NFRA conducted audit quality inspections of the Chartered Accountant Firms M/s Deloitte Haskins & Sells LLP (FRN 117366W/W100018) (DHSL hereinafter), M/s Deloitte Haskins & Sells (FRN 008072S) (DHS hereinafter) and M/s Deloitte Haskins & Sells (FRN 015125N) (DHS hereinafter) during the year 2025-26. The scope of this inspection included a review of the remedial actions taken by the firms for the deficiencies reported in the previous report, a focus on Consultation, Monitoring and Human Resources in respect of SQC-1 and a review of five (5) selected audit engagements of financial statements for the year ending 31.03.2024, focussing on two significant audit areas, viz., Revenue Recognition and Loans & Advances. The third focus area was engagement specific.

The inspection comprised of virtual discussions, onsite visits and also in person interactions. Virtual discussions with the engagement teams of select audit engagements was held to facilitate a walkthrough of the audit files. Onsite visits, involving review of quality control policies, procedures and examination of related documents were held from 05.01.2026 to 09.01.2026. During the onsite visits, the inspection team held interactions with the leadership of the firms along with in person interaction with some engagement teams. These were followed by in person interactions with the remaining engagement teams and other personnel of the firms. After examination of the audit files and interactions, the formal observations were conveyed to the audit firms. Upon receipt of response to such observations, a draft inspection report was issued to the firms and on receipt of the firms' response to the draft inspection report, a final inspection report was issued to the firms, for which a written response was received. The observations are summarised as follows:

Firm Wide Audit Quality Control System-Compliance with Previous Year's Inspection Observation

• i. Audit firms' Non-Audit Service (NAS) Policy applies only to Deloitte India entities, lacking safeguards against prohibited NAS by non-India network firms to Indian clients' group entities.

Individual Audit Engagements

• ii. Company A granted loans to its foreign Wholly Owned Subsidiary below its Weighted Average Cost of Capital. However, sufficient evidence to arrive at arm's length was lacking.
• iii. Company A granted Rs. 890 crore loans to its foreign Wholly Owned Subsidiary in FY 2023-24, triggering mandatory Audit Committee review under Regulation 18 of SEBI LODR. However, the same was not evidenced in the audit file for the loans provided during Quarter 2 and Quarter 3. Further, the end use verification for the loan of Rs. 204 crore provided to such foreign Wholly Owned Subsidiary was not supported by sufficient appropriate audit evidence.
• iv. Company A's exposure amounting to Rs. 2,733 crore in its loss making foreign Wholly Owned Subsidiary lacked sufficient evidence for testing impairment/ECL, wherein the audit firm relied on non-binding MoU, draft agreement, and indicative EXIM financing without proper evaluation.
• v. Company B granted credit extensions/waivers to a significant related party debtor, classifying receivables as "not due", without documented Executive Committee authorization and subsequent Audit Committee review.
• vi. In the case of Company B, it is observed that the Management Representation Letter for Standalone Financial Statements for FY 2023-24, signed by the Chief Financial Officer of Company B included, as Appendix 2, statements corresponding to matters covered under the Companies (Auditor's Report) Order (CARO).

Inspection Overview

1. Section 132 of the Act, inter alia, mandates NFRA, to monitor compliance with Auditing and Accounting Standards, to oversee the quality of service of the profession associated with ensuring compliance with such standards, and to suggest measures required for improvement in the quality of their services. The relevant provisions of NFRA Rules prescribe the procedures in this regard, which include evaluation of the sufficiency of the quality control system of Auditors and the manner of documentation of their work. Under this mandate, NFRA initiated audit quality inspections in August 2025. The overall objective of audit quality inspections is to evaluate the compliance of the audit firms/auditors with auditing standards and other regulatory and professional requirements, and the sufficiency and effectiveness of the quality control systems of the Audit Firm/Auditor, including:

• (a) adequacy of the governance framework and its functioning
• (b) effectiveness of the firm's internal control over audit quality; and
• (c) system of assessment and identification of audit risks and mitigating measures

2. This year's inspection involve a review of the remedial action taken by the firms in response to the previous inspection observations, and a test check of SQC-1 elements and select audit engagements for the financial year 2023-24 performed by the audit firms.

3. Inspections are intended to identify areas and opportunities for improvement in the audit firms' system of quality control. Inspections are, however, not designed to review all aspects and identify all weaknesses in the governance framework or system of internal control or audit risk assessment framework; nor are they designed to provide absolute assurance about the audit firm's quality of audit work. In respect of selected audit engagements, inspections are not designed to identify all the weaknesses in the audit work performed by the auditors in the audit of the financial statements of the selected companies. Inspection reports are also not intended to be either a rating model or a marketing tool for audit firms.

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Audit Quality Inspection Approach

4. Selection of audit firms for the 2024 inspections was based upon the extent of public interest involved, as evidenced by the size, composition and nature of the audit firms, the number of audit engagements completed in the year under review: complexity and diversity of preparer's financial statements (henceforth, Companies) audited by the firms and other risk indicators. M/s Deloitte Haskins & Sells LLP (DHSL), M/s Deloitte Haskins & Sells (DHS) and M/s Deloitte Haskins & Sells (DHS) were the audit firms selected using the above parameters.

5. The selection of individual audit engagements of the audit firms was based on financial and non-financial risk indicators identified by NFRA. Accordingly, the Audit Files in respect of five (5) audit engagements relating to the statutory audit of financial statements for the year ending 31.03.2024 were reviewed during the inspection.

6. The scope of the inspection was as follows:

• a) Review of the remedial measures and improvements made in response to the previous inspection observations for firm-wide quality controls to evaluate the audit firms's adherence to SQC-$1^1$, Code of Ethics and the applicable laws and rules.
• b) Review of areas of quality control viz. Consultation, Monitoring and Human Resources.
• c) Review of individual Audit Engagement Files- A sample of five (5) individual audit engagement files pertaining to the annual statutory audit of financial statements for the year ending 31.03.2024 were selected. Three significant audit areas were identified, out of which two areas viz., Revenue and Loans & Advances were common across all the five (5) engagements, and a third area was engagement specific, based on the inherent risk of material misstatement.