Trouble seems to be brewing up for the auditing operations of the Big 4 in India with the Institute of Chartered Accountants of India (ICAI) raising questions over the manner in which their domestic affiliates source business in the country and share infrastructure, manpower and profits.

ICAI has sent notices to a total of 12 affiliate audit firms of MNCs like PricewaterhouseCoopers, Ernst & Young, KPMG and Grant Thornton, all of whom are big players globally but operate in India through domestic firms. "It is a step against the surrogate manner these companies adopt to take up auditing work in India even as they are not allowed to do so as they are not registered with the ICAI," an official said.

The sources said local affiliates in ICAI's net include BSR & Co (affiliate of KPMG); SR Batliboi (of Ernst & Young); Walker Chandiok & Co (Grant Thornton); and Pricewaterhouse and Lovelock & Lewes (PwC).

The matter has been flagged by ICAI's high-powered committee, which is looking into the Satyam scam, and sources said the step has been backed by the ministry of corporate affairs. Under WTO norms, professional services like auditing and accounting have not yet been opened up for foreign companies. But while these companies do not take up auditing work directly, their affiliates have long been doing so, which has been objected to by the ICAI.

The ICAI committee has asked the Indian affiliate firms to submit documents detailing their agreement/contract and also the terms and conditions for usage of name of the multinational entity. Also, it has asked them to disclose the arrangement for sharing of fee/profit with the multinational entity.

A key issue on which the committee has sought details includes sharing of human resources and infrastructure between the foreign entities and their affiliated audit firms. "In any case, even if they are sharing the network, this networking has to be registered with the ICAI," an ICAI functionary said.

The committee has also sought details of remittances made to and received from the multinational entity while also seeking disclosure on income-tax assessment orders for the last three years in respect of the CA firms registered with ICAI with identical name. It has also asked them to furnish copies of letterheads and visiting cards.