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ICAI seeks details from 12 affiliates of global audit firms
April, 30th 2009

Multinational consulting firms and their arrangements with local audit firms are once again under the scanner of the audit profession regulator, the Institute of Chartered Accountants of India (ICAI).

The CA institute has shot off letters to 12 Indian chartered accountancy firms that have affiliation with international entities.

These 12 firms have now been asked to furnish documents relating to various aspects of their dealings with the international entities including contract details, arrangement of sharing of fees/profits, details of remittances made to and received from multinational entities, copies of the partnership deeds of the audit firms, sharing of human resources and infrastructure and income-tax assessment orders for the last three years, etc.

Also, details have been sought on terms and conditions for usage of the names of the multinational entity besides copies of letterheads and visiting cards generally used.

Satyam trigger

The trigger this time round is the CA institutes attempt to get to the root of the Satyam Computer Services fiasco and suggest systemic changes to retrieve the pride of the audit community. The audit profession had come under a cloud following the Satyam scandal that broke out in early January this year.

The ICAI President, Mr Uttam Prakash Agarwal, told Business Line that the high powered committee constituted by the institute after the Satyam scandal was seeking information to decide whether there was any nexus between the Indian affiliate and the foreign multinational firms. There are lot of allegations against multinational audit firms in the wake of Satyam (scandal). The committee wants to look into it and come up with suitable suggestions, he said.

The role of two Price Waterhouse partners, who attested Satyams financial statements in various years, is already under scrutiny of various investigating agencies.

Valuation issues

There have also been certain valuation issues raised with regard to Maytas Properties, an unlisted entity that Satyam controversially proposed to acquire in December last year. A multinational consulting firm had done the valuation, while its Indian affiliate was the statutory auditor of the unlisted entity.

The ICAI rules do not allow CAs to share fees with non-members. There is still no clarity within the ICAI as to whether a multinational consulting firm is sharing only its establishment with the domestic affiliate or there is also some sharing of audit fees between the two.

This is not the first time that ICAI was looking deep into the arrangements that multinational firms had with local audit firms. It had set up a team in 1995 under Mr Y.M. Kale to study the issues relating to foreign firms. Also in 2002, another study group under Mr Jayant Gokhale was set up to look at the entire gamut of issues.

Surrogate entry

The common complaint against the CA institute was that it has not been able to secure the future of its members, even as the foreign firms through their alleged surrogate entry were able to tap the high-end consultancy market. The more respectable but less remunerative attest function has been left to the Indian chartered accountancy firms.

According to the WTO norms, foreign firms are not allowed to provide auditing and assurance services in India. In fact, the ICAI had raised objection when the Government-appointed Satyam board had wanted to appoint KPMG as statutory auditor of scam-hit Satyam. Now, KPMG and Deloitte have been given the mandate to restate Satyams financial statements. Deloitte is registered with the ICAI, but KPMG is not.

Over the years, there have also been demands that Government should review the alternative route of entry of foreign audit firms in India in the name of management consulting firm. It was often alleged that they were circumventing the law of the land through their backdoor entry and indirectly providing accounting services.

While foreign consulting firms were allowed to operate without any regulatory oversight, the CA institute members were required to conform to a code of conduct even while competing against the foreign entities.


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