ICAI seeks curbs on Big Four

The Institute of Chartered Accountants of India has asked the government to restrict the consultancy and audit businesses of the Big Four global audit firms in India.

In a letter to the department of company affairs, ICAI has pointed out that the workings of the multinational corporations were not in the spirit of the regulations.

ICAI President R Bupathy said several firms were offering audit services in the guise of consultancy. Although the institute did not have hard evidence against the Big Four, Bupathy said there was circumstantial evidence to suggest they had an arrangement in place in India to undertake both audit and consulting work.

"In the guise of consulting, some of them undertake management and internal audits. Unfortunately, the countries where they come from have not opened the consulting business for us," Bupathy pointed out.

He added that audit firms in India were not allowed to advertise and solicit clients. The Big Four, however, advertised their services because they were not registered with the ICAI.

An official in the department of company affairs said the Centre was willing to consider the proposal if the executive council of the ICAI endorsed it. The council is the apex decision-making body of the institute, and has two senior finance ministry officials among its members.

"It will be debated, and if necessary, a legislation to bar multinational audit firms from undertaking consulting will be put in place," the official said. He added that it would be difficult for the government to stop the firms from operating in India if the ICAI failed to gather enough evidence.

Arthur Andersen, Price Waterhouse, Lovelock Lewes, Deloitte Haskins & Sells and Peat Marwick & Mitchell were some of the global audit firms issued licences by the ICAI before 1988 to offer statutory audit services in India.

On July 1, 1988, however, the ICAI Act was amended by providing that the name of the audit firms should have a link with the name of the partners.

Global audit and consulting firms like KPMG, Deloitte & Touche and Ernst & Young now have local associates in Bharat S Raut, S B Billimoria and S R Batliboi, respectively. While the local associates undertake audit work in India, the global partner provides consultation on management, taxation, company laws and various other services.

According to Bupathy, Indian audit firms are at a disadvantage because they are barred from advertising even for consulting work. "We lose out in the consulting business to the multinational firms," he said.

'Audits done by Indian partners'

When asked about ICAI's proposal to the Centre for restricting the Big Four, executives of Ernst & Young, KPMG and PricewaterhouseCoopers said they were not aware of it.

"The audit practice is carried out by S R Batliboi, a 90-year old audit firm of repute," a spokesperson for Ernst & Young told Business Standard. Similarly, a spokesperson for KPMG pointed out that statutory audit was done by Bharat S Raut and not the foreign partner.

However, a partner with a professional services firm added that a consultancy company was not governed by ICAI rules and was free to advertise for its services, though not for its statutory audit services.

There would hardly be any instance of a consultancy company also advertising for its audit practice, he added.