Business pressure & external regulation have changed the way audit firms work

25/06/2018

new delhi: The position of an auditor in an Indian company is no longer an exalted one. Unlike in the not too distant past, when new auditor engagements were discussed politely between a company’s promoter and the heads of audit firms, the process has now moved to the procurement department of the company.
Rotation norms that mandate a change in auditor after 10 years for all listed entities (about 6,000) and certain unlisted entities kicked in from April 2017. The earlier norm of not accepting an audit assignment because fees were lower than the previous year’s was removed when the Chartered Accountants Act was amended in 2006. What followed last year, as rotations kicked in, was an aggressive round of tendering, with audit firms vying for each other’s business, and some of the top ones offering discounts of up to 30%. One company even held a reverse auction among audit firms with open bids.
Senior auditors who spoke to ET Magazine said significant fees were lost in the process some estimates put it at Rs 100 crore for the big auditors. The top 1,516 companies paid around Rs 1,937 crore as fees for 2016-17. The loss for the entire industry could be as much as Rs 1,000 crore, some estimates say.
Cost pressures the pressure of taking on fresh audits in new companies, which require more manpower in the first year have been telling on the audit firms.
Indian firms and those aligned with global networks, which include the Big Four PwC, Deloitte, E&Y and KPMG and others such as Grant Thornton and BDO.
One of the fallouts of the pressure the auditor or chartered accountant (CA) community is facing in India due to regulatory pressure and public scrutiny has been the spate of auditor resignations midway through their assignments. So far in 2018, auditors in 30 listed companies have quit before completing their assignments. That is double the number for the full years of 2016 and 2017. Several were in May 2018 alone.
In a sign of things to come, in January 2018, the Securities and Exchange Board of India (Sebi) had passed an order on the decade-old Satyam Computer case, barring audit firm Price Waterhouse, Bengaluru, and the two auditors from certifying company accounts for three years. It also banned firms associated with PricewaterhouseCoopers (PwC) for audits for two years. Sebi ordered the recovery of Rs 13 crore of wrongful gains with interest from Price Waterhouse and two erstwhile partners.
In March 2018, the government notified the formation of the National Financial Regulatory Authority (NFRA) to regulate and monitor chartered accountants. The provision for NFRA was part of the new companies’ bill that was passed in 2017. This meant an external body will regulate the auditors, instead of the Institute of Chartered Accounts of India. There would be greater scrutiny and the days of self-regulation was over.

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