In corporate governance parlance, auditors are considered to be key ‘gatekeepers’. However, governance failures both in India and around the world have pointed fingers towards the role of auditors. This has led to a series of reforms that impose greater stringency on auditors and the audit process. The concept of Auditor independence requires the auditor to carry out his or her work freely, with integrity and in an objective manner. However, in 2019, the audit fraternity came in for severe criticism for its role in the blowout of IL&FS, collapse of Dewan Housing & Finance Ltd, and the crisis at PMC Bank. Several large divergences were also observed in the audited accounts of YES Bank and other banks. All this and much more happened due to which lots of questions started coming on the Independence of Auditor. Auditor’s financial or other interest in client’s business inappropriately influence his judgement or behaviour and a conflict of interest always exists.

Audit

As a step in this direction, the Ministry of Corporate Affairs (MCA) on 6 February 2020 published a consultation paper to review the existing law and suggest reforms to enhance audit independence and accountability. The Said Consultation Paper ( link Attached) has been issued to examine the existing provisions of law and make suitable amendments therein to enhance audit independence and accountability. This consultation paper seeks to squarely address five “threats” for auditor independence —self-interest, self-review, advocacy, familiarity and intimidation. The Consultation paper has proposed the development of a ‘Composite Audit Quality Index’ to improve accountability of auditors and audit firms. Suggestions have been invited on what qualitative and quantitative parameters should be included in such an index

The Consultation Paper Invites suggestions on below questions

1. What are the way outs to remove such economic concentration of audit

2. Whether number of audits under one audit firm/ Auditor be reduced

3. Whether the number of partners under one audit firm be reduced or fixed

4. How the burden of these Big-4 can be reduced? Which other audit firms in India are able to compete with them and reduce the workload of Big4

5. Are the auditors in listed companies be appointed from a separate panel of auditors prepared by NFRA

6. Whether the home grown Indian audit firms are equipped with the audit procedures, audit tools, manpower capacity to handle the audit of large organisations

Section 144 of the Companies Act, 2013 provides that an auditor shall not provide the following services directly or indirectly to the company or its holding company or its subsidiary company.  These are also been addressed as Influence ability :

1. accounting and book keeping services;

2. internal audit;

3. design and implementation of any financial information system;

4. actuarial services;

5. investment advisory services;

6. investment banking services;

7. rendering of outsourced financial services;

8. management services; and

9. any other kind of services as may be prescribed.

Specifically prohibited services are :

1. Tax Services

2. Services assisting management decision making

3. Payroll services

4. Valuation services

5. Legal services

6. Financial & capital structure allocation

7. Allocation & Investment strategy

8. Underwriting shares

9. Human resource services

10. Accounting & Book Keeping

11. Design & Implement control risk

Author’s take :

Although audit measures have been strengthened over the years, the MCA’s consultation paper reveals a great sense of regulatory dissatisfaction over the current state of affairs. We need to wait and see what is the final take on the consultation Paper and comments received by MCA.

Author Bio

Qualification: CA in Job / Business
Company: PSACS
Location: Noida, New Delhi, IN
Member Since: 23 May 2017 | Total Posts: 4

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One Comment

  1. CA MBGTilak says:

    In my opinion,there are a number of very very Senior CAs with nearly 35 to 40 years of diversified post qualification experiences,both in service holding very senior level positions both in private&public sector, currently practicing as Proprietary firms, whose talent is either underutilized or unutilised in the Country by various panels , particularly headed by some of its unconnected bureaucracy or certain vested interests in awarding. Assurance &other assignments,& even if ,taken for granted,in case small assignment s are given to them that carry with very meager or miserable rate of professional compensation,which obviously any competent CA firm would reject it for either unviability or self-respect or dignity!In recent cases,most of the audit failures are mostly either Big 4 Firms or so called some of big audit firms with low levels of experiences or professional competence.,Under the circumstances,given an opportunity for net working of proprietary CA firms where members with above 25 to 30 Years of post-qualification experience. either in practice or in service, & such of the firms if given an opportunity,as a stand by, alternative to these failed big CA firms, I hope the situation would definitely improves.But the greatest limitations are as to how the un connected bureaucratic & Connected professional bosses,in policy making at helm of affairs, would really respond to this situations of suggestions from senior CAs

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