Skip to main content

Global auditors feel the heat, may face tighter scrutiny

Global auditors feel the heat, may face tighter scrutiny
The move is expected to give a fillip to Indian audit firms and designed to fill the gaps the big four have allegedly misused, including with the help of their huge network and financial muscles, a top regulatory official said.

Global auditing firms may come under greater scrutiny for any wrong-doing as regulators mull ways to make them more accountable, with the role of such auditors -- especially the Big Four -- coming under the lens in various corporate misdoings. The move is expected to give a fillip to Indian audit firms and designed to fill the gaps the big four have allegedly misused, including with the help of their huge network and financial muscles, a top regulatory official said.

Prime Minister Narendra Modi has also talked of the need for Indian audit firms growing to join the ranks of global giants. A big area of concern pertains to the big guns seeking to wash off their hands whenever their names crop up in any accounting wrong-doing while their delaying tactics in the name of jurisdiction have also been noticed, the official said.

"They generally delay probe by appeals and jurisdiction related challenges at various forums and once there is a substantial time lapse, they tend to settle the probe by arguing the time-bar clauses," he said asking not to be named without identifying the global audit companies as several such cases are under probe.

While the existing legal framework provides for stringent provisions for auditing activities, there is no specific system in place when it comes to overseas audit firms. There have been various instances where the role of global auditing firms, including PricewaterhouseCoopers (PwC), was in the regulatory crosshairs for alleged lapses.

Markets regulator Sebi has been probing the role of PwC for alleged negligence and lapses in a nearly decade-old corporate fraud case involving Satyam Computer Services.

Sources said the corporate affairs ministry as well as regulators, including Sebi, are looking at the possibility of having stricter norms for overseas audit companies operating in the country. Preliminary discussions have taken off and various aspects will be looked at in detail before any decision is made in this regard, they added.

"Besides stricter norms, the government has to play an important role and take measures to create such an environment in our country so that big business houses start engaging Indian CA firms," chartered accountant (CA) Vijay Kumar Gupta, Central Council Member, ICAI, observed.

He is of the view that in the recent past, the government machinery has become more active in this direction. "The government should also realise why such type of misreporting is happening at regular intervals. Not only because of outer layer attraction, but compulsions from various quarters, there is concentration of work with Big Four CA firms," he noted.

Gupta feels that Indian firms are much better in terms of audit quality as they depend more on personal analytical skills, physical involvement and updated knowledge of laws in practical terms rather than chiefly doing system-driven techno-based audit functions as done by the Big Four in India.

Many foreign audit firms, including the top four, have good presence in the country, but through their associates and by way of limited liability partnerships. PwC, Deloitte, Ernst & Young and KPMG are generally referred to as the Big Four.

Sebi is investigating the role of the auditing firm that worked for Satyam between 2000 and 2008 and which has been under the scanner for allegedly concealing the scam that came to light in January 2009 when the company's founder B Ramalinga Raju himself admitted to fudging the books.

Price Waterhouse firms are also learnt to have sought settlement of the case through the consent mechanism. In this regard, queries sent to PwC did not elicit any immediate response.

In the Satyam case, chartered accountants' apex body ICAI took action against some members. The Institute of Chartered Accountants of India (ICAI) regulates the profession of chartered accountants and mostly these people act as auditors.

While discussions on having tighter regulations for foreign audit firms are going on, the ministry is already examining the recommendations of the three-member expert panel on various issues related to audit firms amid concerns over certain practices circumventing regulations.

The expert panel, headed by Teri Chairman Ashok Chawla, had submitted its report in March this year. The committee examined various issues pertaining to audit firms, including possible adverse impact from restrictive shareholder agreements.

Back in September 2016, the ministry had set up the panel following representation from several domestic audit companies about the negative impact on them on account of various practices that lead to circumvention of regulations.
Among others, the panel looked at whether joint audit could be introduced in cases where there are restrictive covenants and other specified cases where there is a multinational audit firm as the auditor.

The Business Standard, New Delhi, 11th September 2017

Comments

Popular posts from this blog

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

New money laundering norms stump jewellery sector

New money laundering norms stump jewellery sector Dealers with turnover of Rs 2 crore and above covered; industry says threshold too low The central government has notified the money laundering rules for the gems and jewellery sector with immediate effect. Now, any entity deals in precious metals, precious stones, or other high-value goods and has a turnover of Rs 2 crore or more in a financial year will be covered under the Prevention of Money Laundering Act, 2002 (PMLA, 2002). The limit of Rs 2 crore would be calculated on the basis of the previous year’s turnover, said the notification. The directorate general of goods and service tax intelligence has been appointed under the Act. Sources said the government’s move to apply the PMLA to the jewellery sector was a fallout of income-tax raids on jewellers soon after demonetisation last November, when it was found that they sold gold and jewellery at a huge premium and accepted old currency notes as payment. The notification, issued on Augus…

Confusion over branded food GST

Confusion over branded food GST The GST Council's statement over the weekend on applying tax on branded food items has left most of the trade confused.

Even though the Council has not changed the rates on food -0 per cent on unbranded stuff and 5 per cent on brands -many small traders who didn't levy GST earlier said they could come under the 5 per cent slab after the clarification.

While they predicted some increase in consumer prices, large players said they can absorb GST in many ways and keep prices steady.

"Trade is confused and hence on behalf of our chamber, we have asked our members to go ahead and charge 5 per cent GST," said Sushil Sureka, general secretary of the Ahilya Chamber of Commerce and Industry in Indore.

The statement clarifying the application of GST came after some businesses were found deregistering their brands and selling under corporate brand name without paying tax, after the Council exempted unbranded food from the new all-encompassing indirec…