Committee of Experts submits report on Regulating audit firms and Networks
The report addresses the issues raised by the Supreme Court with a focus to strengthen the legal regime of auditors and promote development of the audit profession in the country.
The Committee of Experts has submitted its report on Regulating audit firms and the Networks to the Government of India through the Secretary, Ministry of Corporate Affairs. The Committee was constituted on April 20, 2018, pursuant to the directions of the Hon'ble Supreme Court in the matter of S. Sukumar versus The Secretary, Institute of Chartered Accountants of India. The Committee consisted of Shri Anurag Agarwal, Joint Secretary, Ministry of Corporate Affairs, Shri Sudhanshu Pandey, Additional Secretary, Department of Commerce and Shri Ravinder, Joint Secretary, Department of Industrial Policy and Promotion.
The report addresses the issues raised by the Supreme Court with a focus to strengthen the legal regime of auditors and promote the development of the audit profession in the country. The Committee scrutinised the networking arrangements adopted by the big four audit firms commonly referred to as multi-national accounting firms to understand their legal structure and method of operation. The Committee also addressed serious concerns like a conflict of interest and transparency arising out of non-audit services provided by auditors and their network and suggested necessary checks and balances. Further, the report deals with the issue of concentration of market power which is another contemporary problem in the market for audit services.
The global trend indicates a clear shift from self-regulation to an independent regulatory structure in the domain of audit regulation due to the failure of the self-regulatory model in regulating the professionals. In light of these developments, the Committee found the establishment of the National Financial Reporting Authority (NFRA) as a necessary institutional reform which would align the Indian audit landscape with the global position. The Committee also recommended measures to further strengthen the operation of NFRA to address contemporary challenges in relation to auditors, audit firms and networks operating in India.
Since it is important to facilitate a business-friendly environment for corporate and professionals in India, Indian laws and regulations on professional services need to keep pace with changing market dynamics. Taking note of this requirement, the report delves into critical issues like advertising, multi-disciplinary practice firms and branding and suggested measures to rationalise the existing laws. These measures are expected to not only enhance the standards of services offered to corporates but also facilitate the audit firms to expand in size and operation to compete globally.
For arriving at the findings and recommendations, the Committee adopted a holistic methodology which included internal meetings, engagement with relevant stakeholders, examining past reports discussed in the Supreme Court's judgment, global literature and best practices in the auditing landscape.
The Committee was ably supported by the research work of the National Institute of Public Finance and Policy.
(With inputs from PIB)