India ready for foreign auditors

Depending on the offers from other members of the World Trade Organization, foreign companies operating in India may, in the not too distant future, have the option of getting their books audited by their auditors back home.

Or, for that matter, Indian audit firms may also audit operations of companies based overseas provided they could win foreign companies' trust.

The Indian government said last week that it has decided to open up accounting, book-keeping and auditing services to competition from overseas players, as part of the ongoing World Trade Organization negotiations on trade in services, scheduled to conclude in 2005. In return, of course, the government insists that Indian auditing firms are given reciprocal market access abroad, including the developed countries.

Other services that are also likely to be opened up include construction, engineering, computer services, financial services, tourism and maritime services.

Foreign players would be allowed to enter auditing through three modes of delivery; commercial presence, consumption abroad, and movement of natural persons. However, the liberalization would allow foreign companies only to handle non-statutory audit while statutory audit would continue to be the preserve of domestic audit firms.

According to commerce ministry sources, the Indian government has decided to clear most hurdles in the way of opening up these services to foreign competition. “India now is convinced about the need to liberalize this segment,” they said. The move is significant in view of the forthcoming ministerial September meeting of the WTO at Cancun in Mexico. Scheduled to begin on September 10, the meet is expected to witness major discussions on services and agriculture.

However, the commerce ministry sources also said that the government could not open up some other important service sectors like legal services and distribution, despite requests from several trading partners, due to the strong opposition from domestic players in these sectors. Distribution covers various services like retailing, wholesale trade, franchising and commission agent services, all of which are booming in the country.

According to government plans, foreign audit firms would be able to set up offices in India and also send in specialists to handle short-term assignments. If the current proposals materialize, professionals dealing in these two categories of services would find it easy to obtain visas for working in India.

Even though the government is keen to allow foreign accounting and audit firms in, industry sources say that the may face stiff resistance from their Indian counterparts. That's because they are already at war with professional service firms with foreign affiliations, particularly the Big Four; PriceWaterhouse Coopers, KPMG, Ernst & Young and Deloitte & Touche.

The Madras, India-based Action Committee of the Institute of Chartered Accountants of India, the statutory body that regulates and monitors audit and accountancy functions in the country, has just sent a strong plea to the government for withdrawing the foreign affiliation of all accounting and audit firms in India. President of ICAI, R Bupathy, alleges that although foreign firms aren't allowed to practice auditing in India, they are rampantly indulging in surrogate auditing.

However the Big Four says that they are Indian although they have a foreign name. “PwC in India is 100 percent Indian-owned and 100 percent Indian managed,” said Roopen Roy, the managing director of PwC. “Therefore, strictly speaking, we are more swadeshi (Indian) than many others. But at a time when India is strongly seeking unrestricted access for our software, Information Technology and back office services in the overseas market and our government is committed to opening up our services sector, these sorts of noises will send wrong signals to the rest of the world.”

Other, like KPMG, Ernst & Young and Deloitte & Touche, prefer not to comment but say that said their auditing businesses are solely conducting by their partners, which are Indian companies.

The Indian government, though, is not paying heed to the resistance that local auditors are putting up. “Opening up of accounting and book-keeping would indeed lead to more competition for domestic players,” says a commerce ministry spokesperson, “but the government feels that permission to operate in other countries would be adequate compensation for the liberalization.”

The government also feels that opening up this service would actually provide Indian accounting firms a leg up because Indian firms could leverage their lower costs of hiring professionals in India to gain market access to other countries.

Meanwhile, the Indian government is demanding increased accountability from the country's accounting and audit professionals. According to the ministry, the government is crafting out a set of new Companies (Auditor's Report) Order that will contain 13 additional guidelines absent under the existing Manufacturing and Other Companies (Auditor's Report) Order's 20.

The most significant feature of the new order is that it would now shift the burden of identifying fraud from company directors to its statutory auditors.

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