FDI norms tweak: Joint audits to boost Indian entities

Companies will now have to go for joint audits in case a foreign investor insists on having an international auditor, a move that will provide a fillip to Indian audit entities.

The government's decision is seen as a significant step towards boosting the prospects of local auditing firms amid the backdrop of Big 4 audit firms holding sway, especially when it comes to companies where there is overseas investment.

Following extensive deliberations and an expert panel report related to audit firms, the government decided to tweak the auditing requirements with respect to companies having foreign investments.

While relaxing the Foreign Direct Investment (FDI) policy last week, the government said that there were no provisions in respect of specification of auditors that can be appointed by the Indian companies receiving foreign investments.

Hence, it has been decided to provide in the FDI policy that wherever the foreign investor wishes to specify a particular auditor/ audit firm having international network for the Indian investee company, then the audit of such companies should be carried out as joint audit wherein one of the auditors should not be part of the same network, an official release had said.

According to former ICAI President Manoj Fadnis, when there is overseas investment, generally the foreign investor would say that it wants to have a particular auditor. They want one of the Big 4 firms to be the auditors, he noted.

The top global accountancy firms — PwC, Deloitte, EY and KPMG — are generally referred to as the Big 4.

With the new regime, if there is a requirement for compulsory appointment of a foreign auditor in the shareholders' agreement, then there should be a joint audit.

"This would strengthen small and medium Indian audit firms to a great extent as well as the independence of auditors. When two auditors carry out the audit work, then there are also checks and balances. "It would help in the growth of Indian firms," Fadnis told