Chawla Panel to Sub­mit Re­port on Jt Au­dit Ro­ta­tion

Some feel joint au­dits won’t im­prove au­dit qual­ity, likely to com­pli­cate mat­ters

The Economic Times - - Companies: Pursuit Of Profit -

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.

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