In order to plug the loopholes that allow foreign audit firms to do surrogate audit practice in India with their Indian associates, the Institute of Chartered Accountants of India (ICAI), the apex body to regulate the chartered accountancy profession in the country, has issued notices to 12 CA firms that have tie-ups with foreign firms.
Only those firms that are registered with ICAI can render audit services in India. However, international audit firms, which are not allowed to practise in India, have been found undertaking statutory audits by tying up with local firms, said ICAI President Uttam Prakash Agarwal.
“The institute wants to find out how these firms are operating and if they are side-stepping the laws to do so. Therefore, notices have been sent to 12 firms having affiliations with foreign entities to understand their modus operandi,” added Agarwal. However, he declined to name these firms.
Price Waterhouse, an Indian arm of global audit firm PricewaterhouseCoopers (PwC), and SR Batliboi, a member firm of Ernst & Young, were some of the prominent Indian firms having affiliation with foreign firms.
The accounting regulator has asked for information about their activities, international affiliations and operating structure in India. In the case of Rs 7,000-crore Satyam fraud, where the two auditors of Price Waterhouse allegedly colluded with the company’s ex-founder and chairman, B Ramalinga Raju, to fudge the IT company’s accounts, the institute could not take action against the firm.
The institute had constituted a seven-member committee headed by Agarwal to look into the Satyam scam and to suggest changes, wherever required, to the government, Securities and Exchange Board of India (Sebi) and other regulators.
The committee, in the course of its task, has decided to write to 12 Indian CA firms having affiliation with international entities, asking them to submit various papers and documents, including agreement or contract with the multinational entity, terms and conditions for usage of name of the multinational entity, arrangement for sharing of fees/profit with other Indian CA firms with similar name and with the multinational entity, arrangement for sharing of human resources and infrastructure with other Indian CA firms with similar or identical name and with the multinational entity.
The firms have to send their responses to ICAI by May 23.