Determining whether an auditor is independent under current laws, say experts, is difficult as audit firms provide services across jurisdictions as part of one common network. As a result, the same network could be providing both audit and non-audit services to the same client, which can lead to a conflict of interest and affect the sanctity of the audit exercise.
At a time when auditors are facing the heat in high profile corporate scams, some firms such as Grant Thornton India decided last year not to take up non-audit work for listed companies audited by them.
A recent consultation paper floated by the corporate affairs ministry called for suggestions on increasing the list of non-audit services and amending existing laws to enhance independence and accountability.
“…the auditors could be tempted to eliminate certain audit procedures to reduce costs, take on riskier clients, acquiesce to management’s demands, or aggressively expand their riskier non-audit services under the banner of a trusted audit firm brand, which would only increase the already continued high rates of audit deficiencies,” the consultation paper said.
In 2018, the Securities and Exchange Board of India (Sebi) barred PW India and a couple of other firms from auditing listed companies in the country for two years over their role in the Satyam case. The ban comes to an end this year.
Most audit firms operate as networks and have a brand licensing pact with the Big Four, which are not allowed to undertake audit activity in India.
MCA’s 5 big concerns
Self-interest: Reliance of auditor on fee from client harms self-interest
Self-review: Auditing their own work such as other non-audit services may hit independence
Advocacy: Acting as advocate on behalf of the client in resolving disputes with 3rd parties
Familiarity: Close relationship with a client could affect objectivity
Intimidation: A client’s bid to exercise undue influence over auditor
Source: MCA's consultation paper