accounting firms may soon have to sever their foreign affiliations, if
accounting and auditing rule maker ICAI has its way.
In what could be a fall-out of the Satyam account fabrication episode,
the Institute of Chartered Accountants of India (ICAI) has started pitching
for restraining all foreign firms from associating with domestic firms that
do statutory audits in India. Since foreign accounting firms cannot do audit
work in India because the country has not yet opened up this sector to
foreign firms under WTO discussions, they tie up with a local audit firm to
offer this service to their clients. Another reason for the tie up is that
an audit firm that advises a client cannot do statutory audit for the same
client due to conflict of interest issues.
The ICAI's proposal, if vetted by the government, may create a major
turnaround in the operations of the Big Four audit consultancy firms in
India––comprising Ernst & Young, KPMG, Deloitte and Price WaterhouseCoopers
(PwC). Even as the Big Four does not do audit in their names, ICAI wants to
put an end to such business associations. "What cannot be done directly,
should not be done indirectly," said ICAI president Ved Jain.
Mr Jain's concern too stems from the WTO perspective. Foreign accounting
firms, which are officially entitled to do "management consultancy," work in
India have tied-up with locally registered firms to carry out audit in the
latter's name. "Management consultancy is a very loosely used term, and
often involves auditing work," said Mr Jain.
If ICAI's view is accepted by the government, foreign consultancy firms
like Ernst & Young, KPMG and Deloitte may lose their audit associations
here. In India, Ernst & Young has tied-up with SR Batliboi & Co, KPMG with
BSR & Co, Deloitte with CC Choksi & Co as their audit affiliate. Price
Waterhouse is the Indian audit arm of its global parent PwC, and all its
employees are Indians.
An audit partner with one of the Big Four audit firms said on condition
of anonymity that under the present set up, foreign consultancies can share,
with its Indian affiliate, 20% of its partners.
*Source : Ecomomic Times ePaper dated 28.01.2009*