Large audit firms face unexpected jolt in the proposed Companies Act amendments
May 6, 2026
New Companies Act amendment proposes a three-year restriction on auditors providing advisory services to their clients
This is part of the Companies Act amendment bill which was introduced by the government in the parliament on March 25 .
Large Indian audit firms that also provide consulting services will be adversely impacted by a proposed amendment to the Companies Act, which stipulates that auditors cannot provide non-audit services to their audit clients for three years after the expiry of the audit mandate.
The proposal is part of the Companies Act amendment bill, which was introduced by the government in Parliament on March 25 and has been referred to a joint parliamentary committee (JPC).
The provision has come in for criticism from a section of audit professionals and firms who say that this cooling off period is excessive and goes much beyond the current rules. The situation is exacerbated by the fact that the proposed cooling period will apply not just for audit clients but also for their holding companies and subsidiaries.
Experts also point out that the long cooling off period will result in companies being possibly deprived of availing specialised consulting services that only their auditing firms offer or are experts of. Conversely, some companies may choose to engage big firms for consulting assignments, while choosing lesser firms for audits.
'Cooling period excessive, too long'
At present, under the National Financial Reporting Authority(NFRA) rules, a consultant can either provide audit services or consulting services but not both simultaneously.
With the proposed change, the government has taken this a step forward and proposes to impose a three-year cooling period. These rules apply to companies and subsidiaries which come under the purview of NFRA, which are large companies both listed and unlisted.
A senior official of Indian Chartered Accountants Institute (ICAI) told Moneycontrol this proposal will have wide spread impact.
“There are more than 100 international network firms operating in India, all of which are connected with domestic firms in some form. Any regulatory change of this nature will have implications across the ecosystem, not just for a few large players,” he said on condition of anonymity.
The official added there was no stakeholder consultation on this specific proposal. “We did not have the opportunity to provide inputs before the proposal was introduced,” the official added.
Compliance professionals say the cooling off period is steep and should be reduced. “The proposed amendments has wide implications for statutory auditors. Three years is very long time for such restrictions after completing the auditing tenure. Six months seems to be reasonable,” said Gaurav Pingle, a company secretary.
“Large firms will lose some work without doubt but more importantly companies might find it difficult to get good consulting experts. The CA firms who comes in as new auditors will not be available for consultancy. A big churn will take place,” said Sanjivv Shiv Kapoor of SP Kapoor & Co Chartered Accountants.
The proposed amendment will also impact cost and pricing structures, experts say.
“The proposed three-year cooling-off period for auditors on non-audit services, applicable to a specified class of companies (including their holding and subsidiaries) goes beyond a routine amendment. In the near term, firms are likely to revisit how they price audit assignments and evaluate client engagements, and may become more selective in taking up new mandates,” said Manish Gupta, lead-corporate, legal and secretarial, AKM Global.
Some experts, however, favour long cooling-off period. “This may seem to be somewhat of a steep requirement but I think the government has very clearly laid out that it considers independence to be non-negotiable. And it is not just independence in mind or in action, but also independence in appearance,” said former ICAI president Aniket Talati. Kapoor of SP Kapoor & Co said the amendment will be beneficial for small firms.
[Moneycontrol]
