The Reader

Indian audit firms that informally work as the audit arms of big foreign accounting firms may soon have to sever their foreign affiliations, if accounting and auditing rule maker ICAI has its way. ICAI has started pitching for restraining all foreign firms from associating with domestic firms that do statutory audits in India. Since foreign accounting firms cannot do audit work in India because the country has not yet opened up this sector to foreign firms under WTO discussions, they tie up with a local audit firm to offer this service to their clients. Another reason for the tie up is that an audit firm that advises a client cannot do statutory audit for the same client due to conflict of interest issues. The ICAI’s proposal, if vetted by the government, may create a major turnaround in the operations of the Big Four audit consultancy firms in India––comprising Ernst & Young, KPMG, Deloitte and Price WaterhouseCoopers (PwC). 


         Even as the Big Four does not do audit in their names, ICAI wants to put an end to such business associations. “What cannot be done directly should not be done indirectly,” said ICAI president Ved Jain. If ICAI’s view is accepted by the government, foreign consultancy firms like Ernst & Young, KPMG and Deloitte may lose their audit associations here. In India, Ernst & Young has tied-up with SR Batliboi & Co, KPMG with BSR & Co, and Deloitte with CC Choksi & Co as their audit affiliate. Price Waterhouse is the Indian audit arm of its global parent PwC, and all its employees are Indians. An audit partner with one of the Big Four audit firms said on condition of anonymity that under the present set up, foreign consultancies can share, with its Indian affiliate, 20% of its partners.