The government is likely to implement phased roll-out for mandatory joint audit of companies, starting with “public interest entities” and large listed companies soon. The proposal, aimed at tightening the audit framework and enhancing the credibility of audit reports, will be a part of the amendments to the Companies Act that are to tabled in Parliament in the upcoming Budget session.
According to sources, the government will likely accept the key recommendations of the Company Law Committee regarding regulation of auditors. This is even as discussions are still taking place on the detailed guidelines for mandatory joint audit – simultaneous audit of a firm by two or more auditors – as well as on the non-audit services (tax strategy, management consulting, valuation, market research, legal advisory, etc.) auditors can and cannot provide to the firms they audit, they added.
The Institute of Chartered Accountants of India, the statutory body entrusted with development and regulation of profession of chartered accountancy, comes in to support the proposal of joint audit.
However, the government is likely to give guidance on behaviour and conduct of auditors for all firms where, among other things, it may be stipulated that a mandatory cooling off period must be followed before they take up a position in the company that they have audited.
According to the Companies Act, carrying out a joint audit is the prerogative of the company’s members. The Reserve Bank of India had in 2021 made it mandatory for financial institutions having asset size of `15,000 crore or more to undertake joint audits.
Nihal N Jambusaria, former president, ICAI, said, “In my opinion, joint audit would be a good practice to follow and can lead to better quality of audit. It should be implemented with a good standard operating procedures.” Similarly, the issue of which services auditors can and can not undertake has also seen a lot of debate.
The ICAI in previous representations to the government suggested that those services, which do not interfere with the audit function and are permissible under Section 144 of the Companies Act should be allowed to be continued.