New Delhi, Jan 14 (PTI) Companies will now have to go forjoint audits in case a foreign investor insists on having aninternational auditor, a move that will provide a fillip toIndian audit entities.
The government's decision is seen as a significant steptowards boosting the prospects of local auditing firms amidthe backdrop of Big 4 audit firms holding sway, especiallywhen it comes to companies where there is overseas investment.
Following extensive deliberations and an expert panelreport related to audit firms, the government decided to tweakthe auditing requirements with respect to companies havingforeign investments.
While relaxing the Foreign Direct Investment (FDI) policylast week, the government said that there were no provisionsin respect of specification of auditors that can be appointedby the Indian companies receiving foreign investments.
Hence, it has been decided to provide in the FDI policythat wherever the foreign investor wishes to specify aparticular auditor/ audit firm having international networkfor the Indian investee company, then the audit of suchcompanies should be carried out as joint audit wherein one ofthe auditors should not be part of the same network, anofficial release had said.
According to former ICAI President Manoj Fadnis, whenthere is overseas investment, generally the foreign investorwould say that it wants to have a particular auditor. Theywant one of the Big 4 firms to be the auditors, he noted.
The top global accountancy firms -- PwC, Deloitte, EY andKPMG -- are generally referred to as the Big 4.
With the new regime, if there is a requirement forcompulsory appointment of a foreign auditor in theshareholders' agreement, then there should be a joint audit.
"This would strengthen small and medium Indian auditfirms to a great extent as well as the independence ofauditors. When two auditors carry out the audit work, thenthere are also checks and balances.
"It would help in the growth of Indian firms," Fadnistold PTI.
While noting that it is a landmark decision, he saidglobally also, there would be few such instances of nationalgovernments taking up such a bold decision.
Last year at the foundation day of chartered accountants'apex body ICAI, Prime Minister Narendra Modi had called forcreating four big Indian accounting firms that are countedamong the world's Big 8.
Referring to the Big 4, the prime minister had said thereare so many accounting firms in India but none of them hasmanaged to find a place among the top global players.
"People talk of the Big 4 accounting firms. Sadly, thereis no Indian firm there. By 2022, let us have a Big 8, where 4firms are Indian," Modi had said.
A three-member group, headed by TERI Chairman AshokChawla, had submitted its report on various issues related toaudit firms last year.
The panel was set up by the corporate affairs ministry inSeptember 2016 following representations from several domesticaudit firms about the negative impact on them due to variouspractices that lead to circumvention of regulations.
"Several audit firms have represented about adverseimpact on Indian audit firms due to the structuring of certainaudit firms leading to circumvention of various regulationsand imposition of restrictive conditions by foreign investorswith regard to auditor appointment by companies," the ministryhad said while constituting the panel in September 2016.
Meanwhile, in a significant order last week, marketsregulator Sebi barred Price Waterhouse network firms fromissuing audit certificates to any listed company in India fortwo years after finding the audit major guilty in the multi-crore Satyam Computer Services scam that came to light inJanuary 2009.
Price Waterhouse had said there has been no intentionalwrongdoing by its firms in the Satyam case and expressedconfidence of getting a stay on the Sebi order. PTI RAMABM.
This is unedited, unformatted feed from the Press Trust of India wire.