The Institute of Chartered Accountants of India (ICAI) is to ask
the Indian government and regulators to review the arrangement
allowing Big Four firms to provide audit services through local
affiliate firms.

ICAI president Ved Jain said these arrangements are a violation
of World Trade Organisation negotiations currently taking place,
which prohibit foreign firms providing accounting and auditing
services in India.

“It should not happen that I represent myself as Firm A, go to
the client and say I am Firm B, an international firm, and just to
comply with the law I get an appointment letter in the name of my
local firm,” he said.

The Indian government is resistant to allowing foreign firms to
operate in India until World Trade Organisation concessions are
made to allow Indian firms to operate in other countries, Jain
said.

At present, foreign firms are only allowed to provide management
consulting services but the Big Four offer audit through their
affiliations with local Indian firms who carry out and sign off the
audits. In India, Ernst & Young has an arrangement with SR
Batliboi & Co, KPMG with BSR & Co and Deloitte with CC
Choksi & Co.

Jain said firms should be absolutely transparent in their
operations.

“Knowing fully well that under the Indian law Firm A can not do
audit work in India, it will not be ethical on their part to go and
represent to the client that we are your auditors. And, after
making all the presentations then you say ‘no sir’ work should be
allotted to my sister Firm B. What is not permissible directly
cannot be permissible indirectly, and auditors being the conscious
keepers should not enter into these activities,” he said.

The development follows the arrest of two Price Waterhouse audit
partners who have been charged with criminal conspiracy,
falsification of accounts and collusion with management. Price
Waterhouse is the Indian audit arm of PricewaterhouseCoopers.

The Satyam fraud scandal could have big implications for the
expansion of global professional services firms in India.

Nicholas Moody

Satyam special report: Where to from
here?