Firms begin hunt for new auditors

There is going to be a major change in the auditors' market as many companies are planning to change them by the end of this year after a government-appointed panel has rejected the industry request to remove a provision in the Companies Act that mandates auditor rotation by the end of 2016-17.

"In India, major companies generally prefer to work with the same auditor for decades.

However, with the panel not even extending the transition period to 2018-19, the auditor market structure is set for a major upheaval. While a few companies have already changed their auditors, the real churning has now begun with big companies shopping for new auditors," said a consultant working with one of the big four firms.

According to the Section 139 of the new Companies Act, every Indian company having a paid up capital of Rs 20 crore or more that has kept the same audit firm for more than 10 years will need to change it by the end of 2016-17. The provision regarding auditor rotation came into force on April 1, 2014, with the law giving such companies three years' time to change auditors.

"There was strong representation from some of the affected auditors to either omit the provisions or increase the transition period to five years in view of implementation of Indian Accounting Standards," said the panel, formed under the chairmanship of ministry of corporate affairs secretary Tapan Ray to recommend amendments in the Companies Act, 2013.

Major companies of the Tata group like Tata Steel, Tata Power and Tata Motors are being audited by Deloitte for more than 15 years. Reliance Industries is being getting audited by Chaturvedi & Shah as well as Rajendra & Co for more than 35 years. Additionally, Deloitte has also been auditing Reliance, along with these two firms, for more than 15 years. Wipro and Infosys have been audited by a member firm of KPMG for more than 10 years.

According to another senior accountant of a big four firm who has been auditing major companies for 20 years, the market is hot now as companies are out shopping. "Major representations were made to the panel where it was asked that at least the deadline should be extended from 2016-17 to 2018-19. However, as even this request was not heeded, major companies are now exchanging invites and quotes from audit firms so that an appointment can be made as soon as possible. At present, 90 per cent of major Indian companies have not rotated their auditors," he said.

"Most of these companies will informally appoint new auditors this year only so that they become familiar with the company's operations, accounts and administration. However, their formal appointment will most likely be done in this year's AGM," he added. As relief, the panel has recommended that the deadline, instead of April 1, 2017, be extended till a company's AGM in 2017.

However, a few big companies have embraced the change and replaced their auditors. Mindtree has changed its audit firm from KPMG to Deloitte. Sharp and Tannan have been auditing Larsen & Toubro for more than 30 years. They will be replaced by Deloitte. Deloitte, which has been auditing Vedanta since 2003, will be replaced by Ernst & Young from 2016-17.