Global firms KPMG and Ernst & Young could be headed for trouble in India as auditing regulator Institute of Chartered Accountants of India (ICAI) has found them doing business through surrogate means, without being registered in the country.

ICAI has questioned the modus operandi of these accounting firms. According to ICAI, these foreign auditing companies operate through their member-firms in India. While S R Batliboi is the member-firm of E&Y in India, BSR & Company is the member-firm of KPMG.

ICAI president Amarjit Chopra told media that the institute has taken a serious view of firms carrying out business in a surrogate manner even though they remained unregistered here. “We want action taken against them and we have approached the government. They should not be allowed to do business in India through surrogate means and without registration.”

Explaining the modus operandi of these firms, Chopra said that while auditing reports are signed on behalf of member-firms, the business is usually taken on behalf of the foreign firm. “This should not be allowed. Moreover, in case of any lapse, we cannot take any action against the parent firm as it is not registered with us and does not take up business directly.”

When contacted by for a response, both E&Y and KPMG refused to comment. However, K N Memani, former chairman and country managing partner for Ernst & Young, termed ICAI’s contention as “without merit” and said the regulatory body was against the Big 4—KPMG , E&Y , Deloitte and Price Waterhouse . “There is nothing illegal about the way E&Y is working in India. There is no violation of any rule. The ICAI Council is bent upon destroying the Big 4 and that is why they find faults. This is very strange,” Memani said, adding these were his personal views. Memani, also a former chairman of government-appointed Quality Review Board (QRB) from where he resigned in early 2009, said E&Y was not doing any surrogate work in India. “They do not do any audit, but only consulting, and thus are not members of ICAI. In any case, E&Y is within its right to have a member-firm and thus there is nothing illegal about S R Batliboi.”

Chopra alleged that Indian firms were losing auditing work as foreign firms entering India were insisting on hiring the Big 4 as auditors.

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