The network effect

Review rules on audit firms providing non-audit services

The Ministry of Corporate Affairs (MCA) is right to propose amending the Chartered Accountants’ Act to build in disciplinary mechanisms to lower “network liability”, otherwise known as conflict of interest risks, between audit firms and affiliates offering non-audit services. Under the current law, audit firms are permitted to offer non-audit services, such as consultancy and related services. But recent examples of audit failures involving the collapse of Infrastructure Leasing & Financial Services (IL&FS) subsidiaries offer cautionary tales in hiring audit firms that are affiliates of national or global consultancy networks offering non-audit services. The intent of the MCA’s proposal may