The Indian auditing industry is divided over
reforms that could radically change the shape of the audit market
following the Satyam scandal. It appears a split has occurred
between the nation’s largest firms, including the Big Four, and the
audit regulator Institute of Chartered Accountants of India.

The International Accounting Bulletin
approached senior employees at the Big Four who would only speak
about the reforms anonymously while investigations into Satyam
continue. The ICAI is trying to clamp down on the Big Four’s audit
operations and has questioned the quality of their work in
comparison with domestic Indian firms.

The regulator is demanding more power to take
action over audit firms. The Big Four are not keen on the ICAI’s
ambitions because of a long lasting disconnect between the Big Four
and the regulator, which has intensified since the Satyam fraud,
according to sources from the Big Four. This is mainly due to a
large proportion of ICAI members being independent CAs and
accountants from small- to medium-sized audit firms. Small firms
claim the Big Four is taking their business away due to being
larger in size and affiliated with global networks.

“The ICAI is dominated by have-not firms. They
are keen on audit rotation so that some business falls into the
laps of the have-nots,” says Nawshir H Mirza, who has served as
senior partner of SR Batliboi & Co.

“The ICAI is suffering from the ‘first, large
corporate fraud syndrome and is, therefore, making recommendations
that are not practical,” another senior CA added.

Post-Satyam, ICAI presidents have come down
heavily on the Big Four. Uttam Prakash Agarwal, the previous
president of the ICAI, said the Big Four are circumventing laws by
providing auditing services in the country.

Chopra echoes this view: “The Big Four can’t
resort to surrogate practices. Many of them have come in via the
FDI route. They were permitted to come in as consultants but they
are doing audit function. This must not be allowed.”

In fact, Chopra categorically wants more
business to come to small- and mid-size audit firms.

“We believe in the concept of a joint audit.
Under this concept, audits are undertaken by big and small firms,”
he said. According to Chopra, the rotation of auditors will not
help small firms but joint audits will.

“We have good audit firms in India and they
have the ability to conduct the audit better than many
transnational firms,” the ICAI chief added.

There is a clear division between the Big Four
and the ICAI and audit reform could well depend on who succeeds in
this battle for influence.

The International Accounting Bulletin
has published an in-depth report that examines the audit reform
proposals. It is open to subscribers and linked below.

Find out more: Satyam scandal: A new dawn?