Inspection Report: M/s CNK & Associates LLP (2024) · 132.2-2024-09

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राष्ट्रीय वित्तीय रिपोर्टिंग प्राधिकरण
National Financial Reporting Authority

INSPECTION REPORT

2024

Audit Firm:
M/s CNK & Associates LLP
Firm Registration No. 101961 W/W - 100036
Inspection Report No.132.2-2024-09
March 27, 2026

National Financial Reporting Authority
7th Floor, Hindustan Times House
18-20, Kasturba Gandhi Marg,
New Delhi 110001

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Contents

Part – A

Executive Summary …………………………………………………………………………………....3
Inspection Overview ...............................................................................................................................5
Audit Quality Inspection Approach ........................................................................................................5
Inspection Methodology .........................................................................................................................6
Audit Firm’s Profile................................................................................................................................6

Part - B

Review of Firm-Wide Audit Quality Control System ............................................................................7

• A. Leadership Responsibilities for Quality within the Firm.........................................................7
• B. Independence Requirements.............................................................................................. 7
• C. Audit Documentation ....................................................................................................... 9
• D. Monitoring ..................................................................................................................... 9
• E. Engagement Performance ............................................................................................... 10
• F. Human Resource ........................................................................................................... 11

Part - C

Review of Individual Audit Engagement Files Focusing on Selected Areas of Audit …….…………11
Revenue …………………………………………………….…………………………………………12
Loans & Advances (Assets) ………………………………………………………….……………….13
Provisions ….…………………………………………………………………………….……………14
Going Concern …………………………………………………………………………….………….14
Trade Receivables .....................................................................................................................15

Part - D

Chronology of Inspection of M/s CNK & Associates LLP .................................................................16
Appendix A: The Firm’s response to this inspection report………………………………….……….16

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PART A

Executive Summary

Section 132 of the Companies Act 2013 mandates the National Financial Reporting Authority (NFRA), inter alia, to monitor compliance with Auditing Standards, to oversee the quality of service of the professions associated with ensuring compliance with such standards, and to suggest measures required for improvement in the quality of their services. Under this mandate, NFRA initiated audit quality inspections of the Chartered Accountants firm M/s CNK & Associates LLP in March 2025. The scope of the inspection included a review of firm-wide quality controls to evaluate the Audit Firm’s adherence to SQC-1 and a review of selected audit documentation of the annual statutory audit of financial statements for the year ending 31.03.2024. Two focus areas, namely Revenue Recognition and Loans and Advances, and one engagement-specific area selected based on risk, were taken for inspection in each audit engagement. The on-site inspection was conducted in October/November 2025.

During the inspection, the Inspection Team held discussions with the Audit Firm personnel, reviewed policies and procedures and examined documents to arrive at the prima facie observations. These observations were conveyed to the Audit Firm in writing. The Audit Firm's responses and documents have been reviewed, and the Final Inspection Report has been issued after consideration of all submissions. This public version of the final inspection report excludes confidential or proprietary information, as pointed out by the Audit Firm. The key observations are summarised as follows:

Firm-Wide Audit Quality Control System

• a. The Firm needs to have documentation regarding (a) nomination of leaders of Key Functional Areas like Independence, Audit Quality, HR and Monitoring, etc., (b) assessment of the suitability of such persons and communication to the person concerned and others in the organization, and (c) the decisions concerning governance and management of the Firm. The Firm assured to maintain formal documentation of these matters. (ref. Paragraphs 11 to 13 of this report)
• b. The Firm needs to have documentation regarding evaluations of independence threats, including self-interest, self-review, and familiarity threats, prior to (a) accepting non-audit services for existing audit clients, and (b) accepting audit engagements where an affiliate or network firm is already providing non-audit services to the same entity. The Firm assured to document these processes and strengthen monitoring and communication going forward. (ref. Paragraphs 14 to 17 of this report)
• c. Independence declarations obtained from partners and professional staff need to fully capture the requirements prescribed under Section 141(3) of the Companies Act, 2013. On the basis of inspection observations, the Firm revised the independence declaration formats to address the identified deficiencies and commenced obtaining declarations in the revised formats from all partners and staff. (ref. Paragraphs 18 to 20 of this report)
• d. The Firm needs to strengthen its policies, procedures, and controls relating to audit documentation, including controls over permitted modifications after the date of the audit report, documentation evidencing preparation and review, and timely assembly of engagement files. The Firm assured that it proposes to implement enhanced electronic controls to restrict modification of audit documentation after archival, with read-only access for engagement teams, partner approval for any post-archival changes (supported by audit trails), timely assembly of audit files, and documents evidencing preparation and review. (ref. Paragraphs 21 to 25 of this report)
• e. The Firm needs to have policy & procedure for evaluation of the operating effectiveness of the Firm’s quality control system including periodic review of completed engagements. The Firm explained its existing monitoring framework and expressed its intention to formalize the documentation thereof. The Firm also stated that it has commenced the internal monitoring process of the Audit files for FY 2024-25. (ref. Paragraphs 26 to 27 of this report)
• f. The Firm needs to strengthen its policy relating to Engagement Quality Control Review. The Firm stated that it has initiated steps to strengthen its EQCR framework. (ref. Paragraphs 28 & 29 of this report)
• g. The Firm needs to have documented policies and procedures for the assignment of engagement partners and engagement team members to audit engagements. The Firm assured to formalise this process by documenting such decisions in the minutes of meetings and communicating assignments formally to engagement team members to enhance clarity, accountability, and compliance with the requirements of SQC 1. (ref. Paragraphs 32 to 33 of this report)

Individual Audit Engagements

• a. In respect of audit of Revenue (in all the three selected audit engagements), one or more audit procedures were not appropriately performed in respect of Concession policy, Verification of Accounting policy, Arm’s Length price of related party transactions, Test of Controls, Selection of Samples, Verification of actual services performed and Payment received from customers. (ref. Paragraphs 35 to 41 of this report)
• b. In respect of the audit of Loans & Advances (in one audit engagement), one or more audit procedures were not appropriately performed in respect of Internal Financial Controls, Sample Selection and audit documentation. (ref. Paragraphs 42 to 44 of this report)
• c. In respect of audit of third engagement specific focus areas i.e., (a) for Provisions - audit procedures were inadequately performed in respect of loans downgraded within a short period after sanctions; (b) for Going Concern – adequate audit procedure was not performed to evaluate management plan to address mismatch between current assets and current liabilities; and (c) for Trade Receivables – direct confirmations were not obtained from debtors. (ref. Paragraphs 45 to 49 of this report)

Inspection Overview

1. Section 132 of the Companies Act 2013 (Act) inter alia mandates the NFRA, to monitor compliance with Auditing and Accounting Standards, to oversee the quality of service of the professions 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 this year’s audit quality inspections in March 2025. The overall objective of audit quality inspections is to evaluate the compliance of the Audit Firm/Auditor 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. Inspections involve a review of the quality control policy, review of certain focus areas, test check of the quality control processes, and test check of audit engagements performed by the Audit Firm during the year.

3. Inspections are intended to identify areas and opportunities for improvement in the Audit Firm’s system of quality control. Inspections are 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 assignments, 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 or a marketing tool for Audit Firms.