Joint audits are a powerful capacity building measure: Bharat Dhawan

Mazars is a accounting and consulting group employing more than 17,000 professionals in 77 countries

France mandated joint auditing in 1966 for all listed entities. The Ministry of Corporate Affairs is looking into the demand by a section of the audit fraternity to make joint auditing mandatory. Headquartered in France, Mazars, a global audit, accounting and consulting group employing more than 17,000 professionals in 77 countries, has been a leading advocate of joint auditing across the globe. In an interaction with Sudipto Dey, Bharat Dhawan, managing director, Mazars India, shares his views on how joint auditing would help to improve the choice of auditors in the market. Edited excerpts:
 
Why is Mazars batting for joint auditing?

 
The issue is about choice of audit firms. There is a perception that choice of audit is now largely restricted to four firms, popularly referred to as “The Big Four”. The debate has been on for many years whether the four firms have the capacity to manage almost all companies globally. In case one of them happens to fail or withdraws from the audit market, the choice will get further limited. 
 

We feel that there should a healthy choice of eight to 12 audit firms to choose from. So joint auditing is one of the ways of creating capacities in the market. The perception in the market is skewed towards the ‘Big Four’. Joint auditing will give an opportunity to firms like us to increase their scale and change that perception. Today Mazars is among the top five audit firms in France. That is largely due to joint auditing. Most top French companies have one of the Big Four as auditor and Mazars.

 
This issue is about building capabilities to do audit on a global scale. Building that choice of eight to 12 global audit firms is a long process. Governance and regulation needs to take that responsibility.   
 
How has been France’s experience of joint auditing?
 
France did not introduce joint auditing in the 1960s to build capacity. Rather, they felt it gave better assurance and quality to readers of financial statements. It creates automatic checks and balances.  When both auditors sign the financial statement, we are risking on each other’s work. Both the auditors plan the audit together, allocate work and take joint decisions on major issues. We also review each other’s work.

 
After several decades of joint audit in France, the top 250 listed companies are audited by 101 audit firms. In India, 25 companies (other than PSUs and banks) among top 100 companies are audited by 26 firms.
 
Joint audit promotes a diverse audit market by providing an incentive for new audit firms to invest in expertise and geographic coverage.  They are a powerful capacity building measure.
 
One perception is that the debate around joint audit is about foreign audit firms versus Indian-owned firms. Do you agree with that?
 
The Big Four (in India) are not foreign-owned but owned by their partners who are Indian. The debate is about concentration of work and the problems the economy will face because of that concentration. It will be good for everyone if one of the top 10 audit firms globally is from India, China or Africa. One could also look at creating a giant Indian audit firm by promoting mergers and through joint audits.

 
Will joint audit not lead to additional compliance costs for businesses?
 
The additional costs for clients will not exceed five per cent.  We are ready to absorb that and not pass it on to clients. Joint audit creates a more competitive environment in the market.
 
Are you banking on joint audit to ramp up India presence?
 
We are anyway looking at taking the inorganic route to scale-up presence in India, both in terms of reach and headcount. We plan to have 1,500-2000 people in India over the next three years. Currently our India head count is around 750.

 
As of now, around 50 per cent of our India business comes from auditing, the rest from tax consultancy and advisory services. Going forward the share of audit in India business will come down even though it will grow in size.