The government is considering changes in laws to make multinational audit firms responsible for professional wrongdoings by their Indian affiliates. Currently, domestic laws do not allow regulatory action against the global network of such firms, even if their Indian affiliates are found guilty of professional negligence.
“You (the global network) can’t say that you are not responsible,” corporate affairs minister Salman Khurshid said in an interview. “If an associate firm does something wrong … will the liability rest with the firm doing the audit in India or will the liability go back to the firm with the same name globally?” he said.
The ministry of corporate affairs recently held a series of discussions with multinational audit consultants on ways to bring in greater accountability to their operations in country. The country’s accounting regulator, Institute of Chartered Accountants of India, is taking up the issue at international fora to gather support for the move to expand accountability of the global networks outside the country.
Global consultancy firms, which work in India through informal tie-ups with local entities, have escaped accountability under Indian laws as they are registered in a different jurisdiction and function as an independent legal entity separate from the local network firms.
The government has been studying various ways and means by which it can imbibe greater transparency and accountability in the functioning of audit firms ever since the Satyam scandal saw the involvement of an associate firm of the UK-based PricewaterhouseCoopers (PwC).
The move may not go down well with global firms such as PwC, Deloitte Touche Tohmatsu, KPMG and Ernst & Young — known as the Big Four.
“Foreign professionals don’t want to audit in India. They audit through Indian firms that are attached to them. Now for us to say that associate firms will not do the audit is too late in the day,” said Mr Khurshid.
While PwC was not involved directly in the audit of erstwhile Satyam Computer Services, its local associates Price Waterhouse and Lovelock & Lewes did the audit for the Hyderabad-based firm. While investigations are going on against the local firms, PwC has escaped the scrutiny of Indian laws. PwC refers to the network of member firms of PricewaterhouseCoopers International (PwCIL). A PwC spokeswomen refused comment for the story.
ICAI has been raising this issue at different international fora, but hasn’t found many takers for the proposed changes. “There has to be a mechanism, which would ensure that the network is held accountable for professional negligence committed by firms that are part of it,” said ICAI president Amarjit Chopra.
Global accounting firms such as KPMG, E&Y and Deloitte also have informal tie-ups with Indian firms to do audit in India. While Deloitte and PwC has similar names for their consulting and the audit divisions in India, KPMG and E&Y have tie-ups with domestic firms that do not share the parent’s name. For instance, KPMG has a tie-up with a domestic firm by the name of BSR & Co, while E&Y works through SR Batliboi & Co.
The global firms are not willing to buy the government’s plan. “Each country should rely upon its own set of regulations and oversight to take care of any audit failure, rather than getting into each others’ jurisdiction,” an auditor with a global firm said, seeking anonymity.

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