A move towards mandatory audit firm rotation has taken a step forward in India, after the country’s upper house, the Rajya Sabha, voted through the long awaited Companies Bill.
As has been the case with much of the rest of the world, mandatory rotation has support from the mid-tier in India, and Suresh Surana, founder of RSM Astute Consulting in India told International Accounting Bulletin he thought "it may not be a bad idea to have rotation as we need to improve corporate governance."
There is less support for rotation among India’s ‘Big Five’ (Big Four and Grant Thornton International), and Richard Rekhey, chief executive officer of KPMG India said "it is dysfunctional and it doesn’t actually serve the purpose which the regulators tried to put it in."
As well as bringing in every 10 year audit firm mandatory rotation, the Bill will require companies to spend at least 2% of profits on Corporate Social Responsibility (CSR), enforce a uniform accounting year end of 31 March for all companies, and will also create a quasi-judicial body, the National Financial Reporting.
Vishesh Chandiok, managing partner at Grant Thornton India told IAB that he was broadly supportive of the NFRA, but warned that "unless it is backed by the right financial resource, the right human resource, it will end up like the old Quality Review Board (QRB), which was still-born from the time it was legislated."
Rekhey was similarly cautious about the new body, describing it as a "positive step," but adding "with the creation of the NFRA there is still no clarity; the rules have not come unfortunately and no one knows how this will play out with the ICAI."
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By GlobalDataAdditionally, the Bill will also make audit firms and partners liable to civil and criminal charges if they are found to have "acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company of its directors or officers."
Surana noted that "people are concerned about the increase in regulatory oversight for the auditors."
The bill passed through India’s lower house, the Lok Sabha, in December 2012 and will now go to President Pranab Mukherjee for his assent, before it officially replaces the Companies Bill, 1956.
