Synopsis
India’s ambition for a globally competitive audit sector faces hurdles, with local firms struggling to match multinational rivals. While protectionist measures are debated, they risk limiting capital access and international growth.
GoI’s drive to build a globally competitive audit industry has not gained enough traction. New rules on auditor rotation have not yielded the desired outcome of giving more local firms a chance to scale up and look multinational competitors in the eye. Companies still prefer to be audited by firms that have global presence, superior technology and international credibility. This presents a policy dilemma. Additional protection for local audit firms could restrict India Inc’s access to capital, while also stunting international ambitions of domestic auditors. Yet, audits by multinational networks raise concerns over accountability and data protection.
India needs its champion audit firms and a blueprint for creating them. Initial steps involve curbing surrogate auditing by local firms and nudging foreign investors away from audit mandates in favour of the Big Four. A stronger response could impose restrictions on hosting Indian corporate data on foreign servers. Sensitive sectors like defence and banking could also be sequestered for audit by local firms. But these measures are selectively protectionist, and don’t answer the question of how to grow local champions with world-beating reach, tech and acceptability. These firms must grow organically in the Indian ecosystem before they can take the competition overseas.
Tighter independence rules like restrictions on non-audit services could adversely affect corporate choice and lead to greater market concentration. The global audit industry is built around global networks and local firms that rely on international partnerships. The way to break into the top league involves building a network across countries offering class-leading services. It may be difficult for India to crack the code on its own. But BRICS could have a reasonable chance of creating an audit network that can take on the Big Four. That would mean being more open to international auditors, not less. As capital flows change direction between G7 and BRICS, nature of the audit industry will undergo significant change.
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