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Bidding era for auditors to end
July, 28th 2010

The government is likely to ask all departmental enterprises and agencies, such as the National Highways Authority of India (NHAI), to dispense with the system of tender-based appointment of internal auditors.

Instead, the Comptroller and Auditor General of India (CAG) and the Institute of Chartered Accountants of India (ICAI) will jointly finalise a panel of eligible audit firms for different categories of projects and entities, based on the project size, number of locations and turnover. For each category, there will be a fixed fee and the agencies will be free to select any auditor from the panel.

For instance, the CAG-ICAI team will formulate eligibility criteria for audit firms to participate in auditing projects that come under various categories such as: up to Rs 100 crore, Rs 100-200 crore and Rs 200-500 crore, and empanel firms for each sector.

The minimum fee for each sector will also be fixed by the joint mechanism that will be set up by CAG and ICAI. This, government officials said, will help reduce instance of unhealthy auditing practices.

ICAI has been complaining that many of its members are quoting unrealistically low amounts and this opens up the possibility of them colluding with the agency whose projects are being audited.

The institute had recently raised the issue with CAG and other government agencies, such as the Planning Commission, seeking a change in norms. It had pointed out that agencies such as NHAI and the Organising Committee for Commonwealth Games were following the system of awarding audit work to firms that quoted the lowest fees, known as L1 in official parlance.

We have raised our concerns about issues such as deposit of earnest money and the system of L1 tenders, as chartered accountants are professionals whose services cannot be sought in that manner, Amarjit Chopra, president of ICAI, said. According to him, acceptance of lowest tender is not desirable in all the cases, as there could be compromise on (auditing) quality.

CAG, officials said, had in turn discussed the matter with the Planning Commission, which has said that it is not averse to the proposal. The new mechanism is expected to be in place over the next six months.

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