The recent amendments made in the Companies Bill, cleared by the Cabinet onn Thursday, is expected to create more jobs for auditors as the government has decided to cap the number of companies an individual auditor can take on as clients, at 20.
“The ceiling will help to create many more jobs for auditors and promote economic democracy,” says Pradeep S Mehta, secretary general, CUTS International.
The move, though triggered through a recommendation made by the Parliamentary Standing Committee on Finance, also gives a breather to big audit firms as they can continue to have large number of clients. The Standing Committee suggested limiting the number of clients according to auditing firms and not auditors. However, amendments cleared by the Cabinet run through the number of companies that can be served by an individual auditor, whereas it does not talk about the audit firm.
While foreign audit firms are not allowed to operate in India, experts say most of the big auditing firms themselves offer consultancy services for major corporates, while for auditing they function through proxies. Hence, most of these big audit firms would benefit from the relaxation in cap.
“It is possible that there are skeletons in the cupboard which may or may not be seen by the auditors. So it is for good that such appointments are not just approved by the board of directors but also validated by shareholders,” says Sushma Berlia, co-founder & chancellor, Apeejay Stya University, who is also an expert on corporate governance.
According to Berlia, auditors should not be worried with the move as this would just add an extra element of transparency and governance rather than creating an issue for them to feel threatened about their job.
Besides, through the amendments in the Bill, the government is also set to bring in more clarity on criminal liability of auditors. However, experts view that auditors should not necessarily be made criminally liable for civil offence as it can also be a result of negligence and bad judgement. “Unless a fraud is found and hence proved, it is not desirable to bring in criminal penalty for civil offences,” Berlia said.
The amendments to the Companies Bill, 2011 is likely to be tabled in the Parliament during winter session.
