Indian audit firms could be shut down and be hit with fines of up to three times the amount of a fraud if found complicit in a scandal, according to new corporate legislation.
The Indian government has presented to Parliament the Companies Bill 2011, which establishes tougher punishment for audit firms involved in corporate frauds.
The bill proposes to extend civil and criminal liability to audit firms as well as partners if it is proved they “acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to or by, the company or its directors or officers”.
Until now it has only been possible to directly take action against individuals and not firms.
The bill imposes higher jail terms for firm employees, stating that “any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to 10 years”.
The bill also seeks to remove some punitive powers from the Institute of Chartered Accountants of India and pass them onto the National Company Law Tribunal.