The concept paper on the companies act is creating a storm in audit circles. It has some very bold proposals, one of which bars auditors from providing non-audit services to the same company.
The auditing industry could soon undergo a big change. The draft paper on Companies Act proposes to ban auditors from performing non-audit services. Some services such as book keeping and internal audit are already banned under ICAI or Institute of Chartered Accountants of India regulations. But at the core of this current controversy is tax consulting. Most Indian auditors are also tax consultants to their clients.
But this, corporate governance experts say, could place auditors in an uncomfortable position, reports CNBC-TV18.
Chartered Accountant Nawshir Mirza says, “Auditors should not be placed in a position where they are subservient to management or at any stage they advocate management's point of view. Because both of these situations would be perceived as marring their objectivity and independence.”
But auditors as well as the regulator – ICAI – have firmly oppose the ban. Kamlesh Vikamsey, VP, ICAI said, “They should not be banned because if you carry out an audit you get in-depth knowledge of the accounting background of the client. This can be very well used for tax computations and tax representations.”
It's a different view in the US. In 2002, after the Enron debacle, the Sarbanes Oxley Act, mandated that all companies seek approval from their audit committees if auditors are to provide tax consultancy. Many large American corporations like Pepsi, and Microsoft, themselves prefer appointing separate firms for audit and taxation. A similar move could soon take place in India.