If joint audit is to be brought in, there should be complete clarity on auditors’ responsibilities: NFRA Chair
Sep 6, 2023
Users of financial statements should have a clear-cut view about which auditor is behind that assertion which is true and fair, Ajay Bhushan Pandey tells ET CFO.
If any system of joint auditing is to be made mandatory for companies, it should have a clear-cut provision of fixing responsibilities, stressed Ajay Bhushan Pandey, Chairperson at the country’s independent audit watchdog, National Financial Reporting Authority, in an exclusive interview to ETCFO.
Whether joint audits should be made mandatory in companies or not, should be the government’s decision. As a regulator, we would only want that if any kind of joint audit is brought in, then there has to be a clear complete clarity on the responsibilities of the joint auditors. It should not become that one joint auditor starts saying that it was the responsibility of another joint auditor and the other joint auditor says it was not his responsibility.Ajay Bhushan Pandey, Chairperson, NFRA told ETCFO
The NFRA Chair said users of financial statements should have a clear-cut view that which auditor is behind that assertion which is true and fair. Also, it is important to note there are a few different shapes and forms of joint audits though there is no single approach as joint audit is not a popular one globally, he added.
“One can think of joint audit in its purest shape where more than one pair of eyes audit an entity in entirety. Next could be Supervised Joint Audit by a lead Joint Auditor. Third could be a highly diluted version of multiple joint auditors where each one is only responsible for areas allocated to them. One has to choose the joint audit model depending upon our main objective i.e. whether we are addressing the issue of audit failures or poor quality audits or audit market concentration or build scale and depth of audit firms,” the NFRA chair said.
In accounting parlance, joint audits mean two auditors carry out the statutory audit and prepare a joint audit report as compared to a single auditor.
Joint audits have been a subject of debate in recent times as a way to improve audit quality among companies amid accounting scams and corporate failures as well as to enhance competition in the markets. Currently, KPMG, Deloitte, EY, and PwC occupy a cumulative market share of roughly 70%.
In India, joint audits were always a mandatory requirement for public sector banks and insurance companies but, in April 2021, the banking regulator, RBI, made them applicable for all financial entities with assets over Rs 15,000 crore. Now a government panel has proposed a mandatory joint. audits for public interest entities, though, this is yet to see the light of the day.
KPMG head against joint audit
In June this year, major accounting firm KPMG’s audit head Sudhir Soni, in an exclusive interview with ETCFO, said, “The risks in a joint audit are higher. It requires an increased need for coordination between two auditors, and also, a company may find it difficult to resolve issues when auditors have different views. Further, the joint audit also drives the cost of audits higher for companies,” Soni had expressed his reservations strongly. In the world today, only France has mandatory joint audits for companies, and there too sharing of work papers between the auditors is allowed, Soni said.
A contrarian view on joint audits also exists in the industry. Accounting firms such as BDO, Grant Thornton, and Mazars are in favour of mandatory joint audits for companies.
“...clearly with the experience of the banking industry where it (joint audits) started much earlier even before the idea became a larger mandate for financial companies and so on and so forth, I think the experience has been pretty redeeming and no one has come up to say that joint audits don’t deliver….I think joint audits will balance out quality issues… somewhere it will (also) give chance to mid-size firms to be at least participate in larger audits…” BDO India Managing Partner Milind Kothari told ETCFO in June.