With the role played by the auditors in Indian companies coming under increasing scrutiny, global audit firms have made voluntary decisions to stay away from accepting non-audit services to the companies or institutions they are auditing. First it was Grant Thornton, then it was Price Waterhouse and now the latest is Deloitte Haskins and Sells.
This has been an age-old controversy. Audit firms which bag the core assignment to audit the accounts of companies are wooed by the promoters of the companies by retaining their services for offering non-audit services at lucrative fees. These are normally consultancy assignments on various management issues. Once this relationship is struck, the promoters try and take the help of the auditors of the firm to go easy on their audits. There are some rules and regulations in force on this but in most cases, there are ways to get around. Large global firms like these float different companies to handle the audit and non-audit services and so on. The present government has introduced some reforms in this which have tightened the situation. One of the first such cases where the auditor’s role came under heavy criticism was the Satyam Computers case where Pricewaterhouse was the auditor. They put the blame on their local executives for the lapses. The promoters in that case had been showing several thousands crore in FDs which were later found to be falsely reported and showed the auditors had not done even the basic duty of confirming with the respective banks.
Then, the recent IL&FS fiasco again threw up the questions on what the auditors were doing all along and why none of the anomalies were reported in their comments to the balance sheets.
There was a desperate need to make the independent auditors really ‘independent’ and this decision by the three biggies could set the tone for the others to emulate.
The statement put out by Deloitte on their decision could convey it all:
“We believe this would increase the public’s confidence in auditor independence and quality and will remove ambiguity in a public and business environment that demands greater clarity about our services.”
Deloitte has used the term “public interest entities” while making this announcement of not accepting non-audit services. Experts say the Institute of Chartered Accountants of India (ICAI) defines this term to include all listed companies, banks and insurance companies. The underlying principle could be where the firm being audited is handling public funds, whether in the form of shares invested or deposits or where the future payments against instruments like insurance policies could be at stake.
There may still be some more action needed to define the non-audit services and to redefine the auditor-audited firm relationship through clear norms and regulations, with no exceptions given.