Only 18% of India Inc ready for auditor rotation, says survey

Others yet to finalise plans but most view auditor change as a step in the right direction

Only 18 per cent of Indian firms are ready for auditor rotation — made compulsory under the Companies Act, 2013 — said a recent survey conducted by Grant Thornton India in association with Prime Database.

According to 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 would need to change the auditor by the end of 2016-17. The provision on auditor rotation came into force on April 1, 2014, with the law giving such companies three years to change auditors.

“Nearly 82 per cent of the respondents are yet to start planning or have an informal plan agreed with the board of directors. Only 18 per cent have either appointed auditors to comply with mandatory firm rotation or have a comprehensive plan in place agreed with the board of directors/audit committee,” said the survey.  The study was conducted from April to mid-June 2016. It had 10 questions and attracted 303 responses from various sectors of industry, including manufacturing, media and entertainment, technology, telecom and aviation.

Despite the fact that the industry is not completely ready for the transition, the survey results showed  78 per cent of the respondents believe this rotation was a step in the right direction to enhance objectivity, leading to improved financial reporting.

Vishesh C Chandiok, national managing partner of Grant Thornton India LLP,  said: “I hope the Indian profession and India Inc implements mandatory firm rotation in substance, so that the objective behind this major reform is fully realised and the future of audit in India is bright. Otherwise, the value placed by external stakeholders on an audit will continue to be questioned, which cannot be in anyone’s long-term interest.” Of the 1,480 companies listed on the National Stock Exchange, only 131 companies have changed their auditors in 2015 and 2016. Therefore, major auditor firms have been asking the government to delay the implementation of the auditor rotation.

According to the survey, 52 per cent of the companies were of the view that it would be favourable for the companies to comply with auditor rotation requirements earlier, as it would ease the adoption of the new Indian accounting standards (known as Ind AS). Pursuant to the road map issued by the ministry of corporate affairs, transition to Ind AS from old accounting principles has been made mandatory from April 1, 2016, for the prescribed class of companies.

LOW COMPLIANCE

The study, conducted from April to mid-June 2016,  had 10 questions and attracted 303 responses from various sectors of industry. Findings:

• 82% of the respondents yet to start planning or have an informal plan agreed with the board of directors
  

 

131 of 1,480 companies listed on the National Stock Exchange changed their auditors in 2015 and 2016
 

78% of the firms think the rotation is a step in right direction