Big Audit Firms Accuse ICAI of Bias and Selective Treatment
In the aftermath of the Institute of Chartered Accountants of India’s (ICAI) actions against S.R. Batliboi & Co (SRBC) and its network firms, major audit firms have accused the ICAI of showing bias towards mid- and small-sized audit firms and individual auditors.
Representatives from the big firms have also raised concerns about the fairness of the ICAI’s directives, claiming that members responsible for issuing orders against the Big Four firms are in direct competition with them.
“The ICAI council members are elected by the members. Traditionally, partners from the big audit firms do not participate in the election process. The ICAI council needs to keep the small and mid-sized practitioners satisfied because there is a significant number of members outside the Big Five firms who play a crucial role in electing the council,” stated a partner at a top audit firm, speaking on the condition of anonymity.
Responding to these accusations, an ICAI spokesperson declined to comment, emphasizing that the disciplinary committee operates independently.
The large firms argue that over 100 domestic audit firms with international affiliations are being targeted, while pointing out the importance of international affiliations in enhancing capabilities. They stress that such affiliations facilitate the development of common tools, technology platforms, training modules, and governance structures, with the costs of services being shared based on the firms’ sizes.
In addition, they cite a 2018 report by the Ministry of Corporate Affairs which absolved audit firms with international affiliations of any wrongdoing.
The three major audit firms interviewed by FE have all accused the ICAI of displaying differential treatment towards large and mid-sized firms. They highlighted instances where penalties imposed on individuals from different firms for similar offenses varied significantly, and expressed concerns about the withdrawal of international networking guidelines by the ICAI.
Experts have indicated that the core issue pertains to the independence of domestic firms within the broader network of the Big Four firms. The latest ICAI order specifically addressed concerns about the affiliation and independence of SRBC, highlighting factors such as staff visiting cards containing information linked to the international entity and email IDs indicating close association with the multinational entity.
The respondent firms have strongly defended their global affiliations, emphasizing that they are not controlled by entities outside India, but instead work to maintain audit quality standards across the network firms.
Several domestic affiliates of the Big Four have obtained stay orders from various High Courts against the disciplinary actions taken by the ICAI.
This conflict between the ICAI and the Big Four dates back to 2009 when the ICAI’s high-powered committee issued a report against the Big Four audit firms. In 2018, the Supreme Court directed the government to establish a committee to oversee the actions of multinational accounting firms (MAF).
This ongoing dispute underscores the challenges and complexities inherent in regulating and governing the activities of multinational audit firms in India.