The Institute of Chartered Accountants of India (ICAI) has accused multinational audit firms operating in India of violating the Chartered Accountants Act, and has asked the Reserve Bank and the Ministry of Corporate Affairs to investigate their accounts.
A 168-page report prepared by the accounting regulator on Operations of Multinational Network Accounting Firms (MNAF), says that a few audit firms associated with MNAFs hold out to the public that they are MNAFs in India whereas to ICAI/regulators, they hold out that they are purely Indian firms having no relationship to foreign entities.
Many CA firms have not furnished complete information and have masked certain portions about their arrangements with multinational accounting firms and action would be taken against them for the same. The report observed that some firms have shared revenue with multinational entities, a clear violation of the CA Act.
Action would be taken against firms that have been found paying referral fees, receiving financial grants, and using name and logo of foreign associations, the report said.
The (ICAI) Council shall request the Ministry of Corporate Affairs, Reserve Bank of India and other relevant Ministries/Departments of Government of India to take appropriate action (to enforce compliance of law), ICAI said in the report.
However, the institute refrained from naming any multinational firm. Currently, the four big multinational audit firms operating in India are Ernst & Young, Deloitte, KPMG and PriceWaterhouseCoopers.
PwC was associated with auditing the books of Satyam Computer Services, now Mahindra Satyam, which was embroiled in a Rs 14,000 crore accounting fraud.
The accounting regulator also said that while India is negotiating with other countries to relax entry-level norms for Indian CAs, many international audit firms are already present and operating in India. In many cases, even where a firm is managed by Indian CAs, such firms are being governed by the international accounting firms.
As a result, this has adversely affected the bargaining capacity of India for Indian accounting profession under the ongoing negotiations in WTO/general agreement of trade in services, the report said.
The ICAI also observed that some of the Indian audit companies have name licence agreements to use international brand names, under which the affiliates have to align their policies with the network, which in turn influences decisions and functioning of the domestic firm.
In this manner, matters such as selection and appointment of partners, acquisition of assets, investment in capital, etc are regulated through the means of such agreements and at times even the representative voting is held by an aligned private limited company rather than the CA firms themselves, it said.