Chawla Panel to Submit Report on Jt Audit Rotation
Some feel joint audits won’t improve audit quality, likely to complicate matters
Vinod Mahanta & Sachin Dave
Mumbai: The countdown for an answer to the question of joint audits may have begun, with an expert panel led by the former competition regulator set to give the government its report on the viability of simultaneously engaging two auditors to examine company books. The Ashok Chawla-headed committee’s recommendations to the ministry of corporate affairs (MCA) would likely hasten a decision on the subject that involves many stakeholders: chief financial officers of India Inc, local audit firms and the Big Four auditors.
Over the past few months, committee members Chawla, industrialist Hari Bhartia and RBI deputy governor NS Vishwanathan have held several rounds of discussions with various stakeholders to assess their opinion on topics as varied as joint audits and restrictive covenants. The panel’s recommendations come amid a growing equity culture, underscoring the need for more transparency and quality in oversight functions and audited financial statements.
While the contents of the discussions are not out in public, ET spoke with many people present in the representations to stitch together a story of what went on in these closed-door meetings among the panel members and stakeholders.
Some CFOs and business leaders, representing industry groupings such as CII, FICCI and Assocham, said they told the committee that the choice of the auditor should be left to the company’s discretion. They said joint audits could lead to higher costs, and a host of administrative issues pertaining to proper division of responsibility and accountability would crop up. Business leaders said that previous experiments with mandatory joint audits in countries such as Canada, Sweden, Denmark and South Africa were ultimately ended, as the practice only inflated costs without demonstrating any tangible beneficial impact on audit quality.
Company financial officers belie- ve joint audits will complicate matters. “Issues will arise on quality, scope of work, compliance, increased costs and accountability. While work will increase for companies, I am not sure if the quality would go up,” says Anil Sharma, CFO, Heidelberg Cement.
“For a small firm like ours, which is a subsidiary of a private MNC, these regulatory changes become a burden. We have our own global checks and balances and we are comfortable with our present auditors. Changes like these add to the perception that India is a difficult place to do business,” adds Tina Rawal, CFO, Hines, a New Delhibased fund and realty developer.
On restrictive covenants — clauses that specifically mention hiring the Big Four firms — the industry representatives said these did not prejudice any particular firm but the law and shareholder approval give companies the discretion to choose their auditors. They also pointed that more than 170 Indian audit firms have international affiliations.
The representatives of The Institute of Chartered Accountants of India (ICAI) also met with the committee members and put forth their arguments. “The institute is looking at what is important from an enhanced governance perspective in large companies,” says Nilesh Vikamsey, vice-president, ICAI.