ICAI charges 3 EY India affiliates with professional misconduct
Apr 28, 2024
Synopsis
The Institute of Chartered Accountants of India (ICAI) has found three EY India affiliate entities guilty of professional misconduct and reprimanded two partners for breaches of the Chartered Accountants Act. The entities were charged for their dealings with global EY network firms not regulated in India, including paying referral fees and using their names for publicity, which is against the guidelines of the Act. The order, issued on Thursday, is the first such action against a Big Four accounting firm in India.
The Institute of Chartered Accountants of India (ICAI) has charged as guilty three EY India affiliate entities in the auditing business and reprimanded two of the firm's partners for breaches of the Chartered Accountants Act because of the manner of dealings between them and global EY network firms not regulated in India.
ICAI classified the transgressions as professional misconduct.
ET has seen a copy of the ICAI order, which was issued on Thursday, the first such order against a Big Four accounting firm. Industry sources claimed the order demonstrated increased scrutiny of global audit firms operating in India through international linkages.
The entities charged are SR Batliboi & Associates LLP, SRBC & Co., LLP and SR Batliboi & Co. LLP, as per the order.
After detailed investigations of documents such as reports, invoices, payments and communications between three EY India affiliate entities and the global network firms the ICAI came to the conclusion that the EY India affiliates had paid referral fees to global network firms namely EY Global (EYG) and EY Europe, Middle East, India and Africa (EY EMEIA) and this was against the guidelines of the Chartered Accountants Act because these firms are not regulated in India.
It also found the EY entities were using the email addresses and visiting cards that advertised the names of their global affiliates which constitute publicity for a foreign audit firm in India not regulated here and thereby is in contravention of the Chartered Accountants Act.
As a disciplinary action it has deregistered the partners from membership of ICAI for three years.
EY India affiliate firm SRBC & Co LLP said it was 'disappointed' with the order. "We are disappointed to receive the order against our former retired partners in the matter of operations of Indian audit firms having network with global firms. We as Indian audit firms have always respected rules and applicable laws. We are reviewing the order and will take action as necessary including all the remedies available under law," according to a statement from SRBC & Co LLP.
Accounting industry sources said ICAI had begun investigations into operations of foreign audit firms operating in India through local registered entities way back in 2013 when it had started calling for documents and scanning email communications and fee arrangements of these entities.
The order that was passed on Thursday is a continuation of several years of such investigations and industry sources claimed that many of these practices may have happened in the past but have been discontinued for quite some time.
It is also believed that other Big Four international accounting firms have faced similar investigations though they haven't been charged as guilty because they sought timely legal recourse.
However, those cases may also come up in future and are being closely watched by experts.
"There is also the politics of whether global accounting firms should operate in India or not. ICAI is a chartered accountants' body and dominated by people who run local CA firms. There has always been a debate on whether the international firms are really local just because they have entities registered here," a prominent chartered accountant said on condition of anonymity.
The question of whether the local entities of global accounting network firms such as the Big Four – Deloitte, KPMG, PwC and EY – are in conformance with local guidelines came up for consideration of India’s Supreme Court as well in 2018.
The apex court at that time asked the Government of India to form a committee to look into these aspects and also instructed ICAI to review if it needs to make amendments to its rules to ensure stricter compliance.
The committee of experts (COE) constituted under the directions of the Supreme Court tabled its report on October 25, 2018.
In its report it concluded that the term multinational accounting firms (MAF) was a 'misnomer'.
"Merely being part of a network and sharing of global costs do not make these Indian network firms MAF's as they are neither owned nor controlled by the international network/entity", the COE stated in its report.
The global audit firms believe the committee’s findings give a clean chit to their operations and paved the way for them to continue working in local avatars with professionals who are trained in India, affiliated to local bodies and regulated by them just as local chartered accountant firms are.
[The Economic Times]
