Foreign audit firms may soon get full practising rights in India. Recommendations to give them full rights and make them accountable are in the final report on the multi-crore Satyam Computers scam submitted by the Institute of Chartered Accountants of India (ICAI) to the ministry of corporate affairs.
The ministry of corporate affairs, the ministry of commerce and the Reserve Bank of India are examining the ICAI recommendations, minister of corporate affairs Salman Khurshid told in an interview.
“ICAI has given us a report on how foreign firms should be brought under the purview of ICAI. They should first be allowed to practise so that they can be made liable. So, we have to work out a system. Discussions are under way. We are talking to the commerce ministry and the RBI on the level of permission that can be given to the foreign firms,” said Khurshid.
Advocating full rights to foreign audit firms, Khurshid said, “If you have to make them liable for negligent practices, you have to first allow them to practise. You can’t have both ways where you prevent them from practising and say that you can be punished. So the whole picture has to be sorted out. We are looking at it.”
A senior ICAI member said the whole idea was to hold someone responsible and bring the right person to book in case of any wrongdoing.
“When the Satyam accounting fraud broke out, the general perception was that PricewaterhouseCoopers (PwC) India was the auditor. But on paper it was Pricewaterhouse Hyderabad or Lovelock & Lewis, which is the Indian associate of Pricewaterhouse and interestingly there was overlapping of partnership. There are individuals who are partners of both PwC India and Lovelock & Lewis. This unnecessarily creates a lot of confusion. Such complications should be done away with,” the member said.
At present, foreign firms such as Deloitte, Ernst & Young, PwC, and KPMG have tie-ups with domestic accounting firms. The Indian affiliates of PricewaterhouseCoopers include Pricewaterhouse firms and Lovelock & Lewis, while Deloitte has tie-ups with C C Chokshi, A F Ferguson, Fraser & Ross and S B Billimoria. Similarly, KPMG has a tie-up with BSR, and Ernst & Young has a tie-up with S R Batliboi.
Under the existing World Trade Organisation agreement, India has no obligation to open its market to foreign audit firms. However, in the Doha Rounds, India can agree to open its market to its trade partners.
The role of global audit firms came under scrutiny when two partners of Satyam’s auditor Pricewaterhouse were arrested.
A partner and director of one of the Big Four firms told Financial Chronicle, “I have heard of such a move. In fact, this is a very progressive move. Often some negative perception is being created unnecessarily against Big Four firms. This would also create a level-playing field among audit firms. Those who cannot use the parent company’s name while auditing will now be able to use that name. Having said that, I must add that there has to be a rider: partners of the parent firm or the parent firm should not be held responsible for any wrongdoings at the Indian operations’ end. The Indian outfits are accountable anyways.”
This is shocking to hear from a minister. To punish a defaulter first you have to make that one legitimate. Its like a illegal immgrant was found in Delhi, you woudl first give them a passport and then take to court to punish them.
How low can people fall? Shame.
This is bad news for us because Indian CAs are not recognised in USA or Canada so why we should allow them to practice them in India until those countries allow us to recognised there. It should be reciprocal- CA. Ashok Aggarwal.
Good news for foreign firms, Indian Ministry, Indian Government, economy etc.; the affected parties are obviously the Indian firms, its owners/ empployees and individual practitioners. Mixed feelings for partners/ directors and employees of these foreign affiliated firms.
Coming to the level of permission, one must bear in mind, this is a professional services set up and requires highest level of adherence to ‘professional ethics’ and ‘standards’; unlike in a business venture, one cannot measure the ‘accountability’ based on ownership or investment. Even 1% of professional negligence should be punishable and cannot be allowed. However for flexibility, there can be 2-3 levels or types of permission, depending on the foreign firms’ role and investment in the Indian firm. Dialogue with foreign affiliates in the pre-permission stage is desired, being the first time of implementing this policy.
Advocating full rights as proposed by the Minister, should be appreciated in its right spirit – India needs such International network in this professional field too. The foreign firms too should respect this right – for bettering their operations in India and to make them accountable, if found guilty.
A separate and independent body with complete set of regulations need to be created, which may include inter-alia, role of foreign firms in the Indian firm should be spelt out and approval be obtained, whether the agreement terms between Indian and foreign firms are acceptable to the body?, norms for award of assignments where foreign firms are involved, mechanism for obtaining pre and post approval for significant activities of these foreign tie-up firms, norms for punishment for offences or gross negligence or for not adhering to the norms of the body such as penalties, refund of fee earned, debarring the partner or the firm or cancellation of foreign firms’ license.
Demise of the small domestic audit firms.