Allow Audit Firms to Offer Legal Services: MCA Panel

Bats for development of multi-disciplinary practice firms; law firms oppose proposal

An expert panel constituted by the ministry of corporate affairs (MCA) has recommended that Advocates Act be amended to allow audit firms to offer legal services, a proposal which is being opposed by law firms.The MCA panel, which was set up to look into the regulation of audit firms and their networks, is of the view that development of multi-disciplinary practice (MDP) firms should be facilitated in the country, and to meet this goal, auditors should be allowed to expand their portfolio of services. “For Indian firms to evolve into global leaders in auditing, legal, consultancy, and ancillary services, it is necessary to rationalise the Advocate Act 1961 to facilitate development of Indian audit firms as well as legal firms,” stated the panel’s report.

The report states that in 2015, the Society of Indian Law Firms had complained to the Delhi Bar Council against the ‘Big 4’ — PwC, Deloitte, KPMG, and EY — for unauthorised practice of law.

‘Retrograde Step’

But at the same time, law firms are diversifying into MDPs such as forensic operations and undertaking commercial diligence and investigation for their clients. For instance, the report states, AZ&B Partners reportedly hired six forensic experts from EY. As ET reported earlier, the expert panel has recommended that international brand names for audit firms should be allowed. If this proposal is accepted, it would mean that the Indian affiliates or ‘network firms’ can officially use the names of the Big 4 while auditing balance sheets. And if the proposal to allow audit firms to provide legal services is accepted too, lawyers apprehend that it could create a scenario where the Big 4 could also offer legal services, at a time when foreign law firms are not allowed to operate in the country.

“Any law that is there for some time needs amendment and Advocates Act is no exception. If multinational law firms or foreign lawyers come to India it would create healthy competition. But what should not be allowed is CA and CS firms practicing law and starting law firms. This would only create havoc and it would be very difficult for any regulator to manage them,” said Lalit Bhasin, the president of the Society of Indian Law Firms. Bhasin added that allowing multi-disciplinary practice would be a ‘retrograde step’ as it would destroy independence of the legal profession, which would become a business.

Lawyers feel allowing the Big 4 to offer legal services might have conflict issues. “There is a clear case of conflict on the audit side, while it may not be the same in the case of tax advice — which is anyway within the domain of law firms in most countries. The independence and role of auditors is under the scanner in an increasing number of cases already,” said Anand Desai, managing partner, DSK Legal. Globally, the Big 4 offer fullscale legal services in some geographies and ‘alternate legal services’ in others. Last year, PwC launched ILC legal in US and Flexible Legal Resources for international clients. Deloitte has entered the legal services business in UK and also acquired a US legal firm.EY, too, has bought a legal services provider in US.

In India, in the past, legal notices have been issued to Indian arms of the Big 4 for hiring lawyers and operating “surrogate” law firms. The Indian affiliates of the Big 4 have hired lawyers by the hundreds to provide low-value legal and documentation work for which legal firms charge more.

The Economic Times, 24th November, 2018

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