“As such, these firms do not contravene provisions of Chartered Accountants Act, 1949, which bar members of the countries not allowing Indians to practice accountancy in their jurisdiction to become chartered accountants in India,” said the committee, headed by Anurag Agarwal, a joint secretary in the Ministry of Corporate Affairs.
The panel said such Indian audit firms cannot be equated with multi-national corporations. “Consequently, the term MAF is a misnomer,” it said.
As far as allegations of violation of FDI norms are concerned, the committee said it is not a question of violation or enforcement of FEMA per se since the firm has claimed that the funds have been received by it as grant and not capital.
It said only the home ministry can verify the veracity of this claim of the audit firm.
The committee noted that such audit firms admittedly follow various internal processes, policies and methodology adopted by their respective networks internationally.
This is aimed at maintaining consistent standards in audit quality globally within a network. While such networks bring better business opportunities in a global economy, they should be subject to necessary checks and balances, the panel noted.
As such, the panel recommended that the government should revisit the cap on non-audit fees of auditors who are members of the international network. At present, the restriction is that this fee cannot exceed the audit fee. The committee recommended that it should be capped at 50 per cent of the audit fee.
The committee also wanted the government to revisit the list of non-audit services that auditors are prohibited from undertaking. The Section 144 of the Companies Act prohibits the statutory auditors from carrying out certain services such as accounting and bookkeeping, internal audit, design and implementation of any financial information system, actuarial services, investment advisory services, investment banking services, outsourced financial services.
The committee recommended that the list should be expanded to include all kinds of taxation, valuation and restructuring services provided to the auditee company or its associate companies.
The committee noted that though the new Companies Act came into force, post-Satyam, there are still loopholes in the Chartered Accountants Act, which should be addressed. For instance, while monetary liability on an individual auditor is capped at Rs 500,000, there is no monetary liability on audit firms at all.
It pinned hopes on the National Financial Reporting Authority (NFRA) to fill this lacuna.
The panel also called for changing laws to bring in necessary competition and standards in auditing. It said opening up professional services to competition is necessary and audit firms should be allowed to advertise with some restrictions.
Laws must be rationalised to promote Multi-Disciplinary Practices (MDPs) to allow firms to offer a bouquet of high-quality professional services at par with international standards.
As such, The Advocates Act, 1961, needs to be rationalised to facilitate the development of Indian audit firms into MDPs, it said.
An impression has been created that the Indian audit firms, which are affiliated with international networks, constitute Multinational Accounting Firms
As such, these firms do not contravene provisions of Chartered Accountants Act, 1949
Such audit firms admittedly follow various internal processes, policies and methodology adopted by their respective networks internationally