Audit companies get a breather on FDI front from SC-appointed committee

With a Supreme Court appointed committee giving the green signal to audit companies to use global brand names in India, the stage is set for more such networks to set up shop in the country.

The committee found that the audit companies, which use foreign brand names, are owned by Indian partners. These firms give (approx) 0.7 per cent of their revenue as "network fees" to the foreign trusts that own the brand name used globally. The SC had set up a committee after a litigant raised questions over foreign direct investment (FDI) received by Price Waterhouse in India.

The report by the SC-appointed committee would help clear the confusion over a grant received by an Indian audit firm from its overseas network after it was embroiled in the Satyam case. The litigant had said the grant was FDI and hence a case was filed in the SC. The local audit firm had paid tax on the grant which was used to revive the Indian company.

"The report is a watershed as it is for the first time that such a detailed attempt has been made to understand the structure of so-called multinational audit firms (MAFs) and the implications, and what needs to be done. The committee has rightly concluded that the term “MAF” is itself a misnomer. The fact is that each network firm is owned by the Indian partners, and the fact that there is a foreign name, and a network fee payment, is not a reason to conclude as if these firms are multinationals," said Ketan Dalal, founder and Managing Partner of Katalyst Advisors LLP.

“It is gratifying that the report has recognised various on ground realities and has demonstrated contemporary thinking, unfettered by vested interests. Particularly interesting is its point that multidisciplinary practices should be allowed; that clearly is a recognition of the fact that clients need integrated solutions, which can be better provided by Multidisciplinary firms," said he.