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Industry opposes proposal on joint audits, appointment panel

The ICAI has, however, supported mandatory joint audits and an independent panel to appoint auditors in its submission to the MCA.

Written by Karunjit Singh | New Delhi | Published: April 11, 2020 12:50:16 am
joint audit, Ministry of Corporate Affairs, mca joint audit proposal, icai, india inc, DHFL, IL&FS  The MCA recently strengthened the reporting requirements for auditors as part of a drive to boost corporate governance, after major corporate failures at companies such as IL&FS and DHFL.

Top audit firms and India Inc are in lockstep in opposing mandatory joint audits for large companies and an independent panel for appointment of auditors for large companies by an independent panel, two suggestions floated in a consultation paper by the Ministry of Corporate Affairs (MCA).

The Indian Express has learnt that the Institute of Chartered Accountants of India (ICAI) has, however, supported the idea of mandatory joint audits and an independent panel to appoint auditors in its submission to the MCA.

The Ministry had invited comments on the above proposal as well as on a proposal to limit the number of partners per audit firm, causing major concerns at the four big audit firms, Deloitte, KPMG, EY and PricewaterhouseCoopers, The Indian Express has learnt. The consultation paper also proposed barring auditors of large corporates from providing any non-audit services to their clients to avoid conflict of interest.

The MCA recently strengthened the reporting requirements for auditors as part of a drive to boost corporate governance, after major corporate failures at companies such as IL&FS and DHFL.

Leaders at top auditing firms said there was little evidence of mandated joint audits leading to better audit quality internationally. “Joint audits create an issue of a lack of accountability. There is a risk of some issues falling between the cracks,” said a partner at a leading audit firm who requested anonymity, adding that many other countries had considered and rejected joint audits as a measure to improve audit quality.

Another partner at a leading audit firm said, “It is important to leave the decision to appoint an auditor with an audit committee as an independent panel may not have the necessary expertise to appoint the right auditor,” adding that increased transparency in the functioning of a audit committee was a better solution. “The Centre should consider requiring audit committees to make greater disclosures on the selection process for auditors,” said the person.

In its comments, the Confederation of Indian Industry (CII) said mandating joint audits for larger companies would “not help improve audit quality, but would result in increased cost.” It also said that appointment of auditors be left to the company like all critical decisions.

A source aware of developments said that ICAI had recommended the implementation of an independent panel to appoint auditors, but noted that the panel may face issues in assessing auditors appropriate for a variety of companies.

A partner at another top audit firm said that the proposal to limit the number of partners in a firm was retrograde and the government needed to take steps to promote the merger of smaller firms into larger firms. ICAI, too, has opposed the proposal to limit the number of partners in a single firm according to sources.

Leading auditors have also opposed the proposal to increase the number of non-audit services that auditors would be barred from providing to audit clients to avoid a conflict interest, stating that current provisions were sufficient.

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