Global audit firms flouting Indian norms, Icai says in report

Global audit firms flouting Indian norms, Icai says in report

New Delhi: India’s apex body of accountants has said global audit firms operating in the country are flouting local rules, and has asked the ministry of corporate affairs and the central bank to take measures to enforce norms.

“Most of these networks are created or established outside India and are functioning under different ethical and regulatory guidelines," the Institute of Chartered Accountants of India, or Icai, said in a report it submitted to the ministry of corporate affairs (MCA) earlier this month.

“Indian CA firms having international affiliations are subject to regulatory jurisdiction of Icai and are required to follow code of ethics applicable to CAs in India," it said. Icai has published the report on its website.

The dichotomy of foreign entities operating in close association with Indian CA firms—often permitting common brand names, logos and leveraging on their international resources—is vitiating the field for other local CA firms, Icai said.

The “Big Four" global auditors—Deloitte Touche Tohmatsu, PricewaterhouseCoopers (PwC), Ernst & Young (E&Y), and KPMG —are among foreign entities with local affiliations that essentially are Indian CA firms.

Icai does not directly name any multinational audit firms in its report.

G. Ramaswamy, Icai president, said the report’s purpose is to set same standards for all audit firms operating in India.

Spokespersons of Deloitte Touche Tohmatsu India, PwC and E&Y declined to comment on the report. KPMG’s spokesperson in India could not be reached immediately.

Icai began working on the report last year after its initial findings on the role of S. Gopalakrishnan and Srinivas Talluri, senior partners at Price Waterhouse, in the multi-crore accounting fraud at Satyam Computer Services.

Icai has been seeking powers to probe CA firms associated in cases of frauds. Currently, it can only probe the CAs involved.

Icai in its report has asked the “Big Four" audit firms for information on revenue sharing with their international affiliates, particularly in the areas of marketing, publicity and advertising, some of which are not allowed under the CA Act.

In response to the institute’s letter, some firms have furnished documents after redacting portions such as financial figures, profit-sharing ratio and capital contribution, Icai said in the report. “Firms having affiliation with ‘Big Four’ international entities have not submitted complete information."

The institute has asked the Icai council, a core group of elected members that takes vital decisions, to consider taking action against firms that have only supplied partial information.

Icai wants the council to recommend to MCA and the central bank to engage only those accountancy firms registered with the institute so that standards can be maintained by “virtue of regulatory mechanism".

It also wants the council to request the central bank and the Foreign Investment Promotion Board to examine approvals and remittances made by multinational accounting firms.