Auditors can be consultants

CA council levels field for Indian firms.

Domestic audit firms will have a chance to compete in a level-playing field with foreign firms after the profession's governing body today decided to allow Indian auditors to head companies engaged exclusively in management consultancy.

The concession will be granted to Indian auditors without depriving them of their right to carry out audit practice, a sacrifice they have to make till now.

The Institute of Chartered Accountants of India's (ICAI) decision has come about four years after a group of Indian auditors came together under the banner of "Chartered Accountants' Action Committee for Level Playing Field" to act as a pressure group.

The group claimed, among other things, that international audit firms ended up using their consultancy business as a tool to grab more audit assignments.

Indian auditors would get an opportunity to scale up their management consultancy business when it was carried out through a company, TA Manoharan, president of ICAI, said after the meeting of the governing council.

At present, auditors can offer management consultancy only through partnerships or as individuals.

Manoharan told Business Standard that the ICAI's decision was unrelated to the pressure group's agenda. Another member of the governing council, too, emphasised that the pressure group's campaign agenda of 2002 and 2003 did not influence the decision.

S Gurumurthy, who spearheaded the pressure group's campaign then, felt that the concept of allowing auditors to carry out consultancy practice was flawed because of the possibility of a conflict of interest.

"Those who have corporate consultancy should not do audit. That is the correct line to be drawn," he said. He, however, declined to comment on the latest development till he studied the details.

The proposed move will allow Indian auditors to compete with both foreign audit firms such as KPMG, which offer consultancy services through sister concerns, and regular management consultancies.

A consultancy floated by an audit firm can bring domain experts into the company, something not possible under the present set of rules.