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Audit practices in India have pushed back against proposed changes to auditor independence rules, the Economic Times reported.
This comes after the Ministry of Corporate Affairs suggested amendments to the Companies Act to expand restrictions under Section 144.
Under the proposal, audit companies would be prohibited from offering any non-audit services to clients for three years after their audit tenure ends.
According to the auditors, the proposed rule could reshape the audit market, alter commercial models and reduce options for companies.
Industry experts told the publication that two elements in the draft proposal are particularly significant: the use of the word “any” in relation to non-audit services, without detailing what that includes, and the extension of the restriction to a three-year period after the audit relationship has ceased.
BDO group managing director Yogesh Sharma was quoted by the ET as saying: “While there has been a concept of a cooling off period prior to acceptance of an audit engagement in certain overseas geographies, a cooling off period for non-audit services after the end of an audit tenure is fairly unique.”
Audit professionals noted that most large international networks active in India – including Deloitte, KPMG, PwC, GT and BDO – already choose not to take up even “allowed” non-audit mandates from an audit client during the engagement period.
They argue that adding a further three-year bar would be excessive and could have anti-competitive effects.
India’s banking sector already operates with a one-year cooling-off period for statutory auditors under Reserve Bank of India rules.
However, experts said there is little evidence that stretching this to three years in the corporate sector would enhance audit quality.
Audit companies expect two broad outcomes if the proposal is implemented unchanged.
First, mid-sized and smaller operators that rely on ongoing advisory work may be hit harder, while bigger practices could better absorb the gap, leading to greater concentration at the top.
Second, even large companies may pick clients more carefully as each audit could block non-audit work with that company for around eight years, reshaping the business case.
“Indian audit companies warn of fallout from tighter rules – report” was originally created and published by International Accounting Bulletin, a GlobalData owned brand.
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