Statutory auditors may not get large companies’ non-audit services
A. Synopsis
The government is exploring the possibility of joint audit for certain companies as part of the amendments to the Companies Act, for which a Bill is planned to be introduced during the Budget session of Parliament that reconvenes next month.
B. Key Highlights
The government is looking to ban statutory auditors from taking up non-audit work on “public interest” companies — which means those that are listed or are above a certain threshold — and their subsidiaries.
The ministry of corporate affairs (MCA), which will pilot the Bill, is currently engaged in consultations and is yet to decide the final details of the legislation, which will also need inter-ministerial discussion and a go-ahead from the Union Cabinet.
The move will come as a setback not only for large accounting firms, that operate through a network of firms, but also for some medium sized firms having listed clients.
The plan is to restrict it to “public interest”: Companies will be modelled on the lines of the regime under the National Financial Reporting Authority (NFRA), which supervises the functioning of 6,820 companies and their auditors and audit firms.
The fresh discussions around the ban on non-audit work follows the experience with several entities that have faced a crisis in recent years, including IL&FS, and some of the troubled banks and nonbanking finance companies, where the role of auditors has come under scrutiny.
Similarly, on the issue of joint audit, MCA had almost dropped the plan after a report by a committee under former finance secretary Ashok Chawla, but has re-opened the issue, despite protests from industry chambers and other interest groups that fear that the cost will rise significantly
