A government-appointed panel on Wednesday recommended strengthening of the National Financial Reporting Authority (NFRA) to "address contemporary challenges in relation to auditors, audit firms and networks operating in India".
"The Committee found establishment of the NFRA as a necessary institutional reform which would align the Indian audit landscape with the global position," the Ministry of Corporate Affairs said in a statement.
It also recommended measures to further strengthen the operation of NFRA to address the contemporary challenges in regulating the audit firms and the networks of the big four audit firms - EY, Deloitte, KPMG and PricewaterhouseCoopers (PwC) - in India.
"The global trend indicates a clear shift from self-regulation to independent regulatory structure in the domain of audit regulation due to the failure of self-regulatory model in regulating the professionals," the statement quoted the committee.
The three-member Committee of Experts, which submitted its report on 'regulating audit firms and the networks', was constituted by the Ministry in April 2018 in response to a Supreme Court directive.
The members are Ministry of Corporate Affairs Joint Secretary Anurag Agarwal, Department of Commerce Additional Secretary Sudhanshu Pandey and Department of Industrial Policy and Promotion Joint Secretary Ravinder.
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.
It scrutinised the networking arrangements adopted by the big four audit firms to understand their legal structure and method of operation.
"The Committee also addressed serious concerns like 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 Ministry said.
The report also delved 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," it said.
(With inputs from agencies.)