The government has proposed significant amendments to existing regulations to enhance independence and accountability of auditors.
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Against the backdrop of instances of many auditors and auditing entities coming under the regulatory lens for alleged misdoings, the government has come out with a consultation paper on proposed legal changes regarding audit.
The paper has suggestions for curbing five “threats” for the independence of auditors. The threats pertain to self-interest, self-review, advocacy, familiarity and intimidation.
A significant topic in the paper is about economic concentration of the “Big Four” audit firms and the need to build the capacity of home-grown Indian firms that may need to be at par with global organisations in terms of audit procedures and manpower capacity, among other factors.
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PWC, Deloitte, EY and KPMG are generally referred to as the ‘Big Four’, which operate in India through a network of local chartered accountants firms.
The paper has sought comments on whether the number of audits under one audit firm or auditor needs to be reduced. Inspection of audit engagements and developing a ‘Composite Audit Quality Index’ to improve accountability of auditors and audit firms are among other proposals.
Suggestions sought
“... suggestions are invited on what qualitative and quantitative parameters should be included in such an index, how they should be measured, and which companies should be mandated for,” as per the paper.
The deadline for submitting comments on the paper to “examine the existing provisions of law and make suitable amendments therein to enhance audit independence and accountability” is February 28. The Corporate Affairs Ministry is responsible for implementing the Companies Act.