CA Sansaar
Proposed Companies Act Changes May Impact Large Audit and Consulting Firms
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A proposed amendment to the Companies Act could create significant challenges for large audit firms in India that also offer advisory and consulting services. According to the new proposal, audit firms would be prohibited from providing non-audit or consulting services to their audit clients for a period of three years after the completion of the audit assignment.
The amendment bill, introduced in Parliament by the government on March 25, has now been referred to a Joint Parliamentary Committee (JPC) for further review and discussion.
Several professionals from the audit industry have raised concerns over the proposed rule, stating that the three-year cooling-off period is considerably stricter than the existing framework. They also highlighted that the restriction would not be limited to the primary audit client alone, but would additionally extend to the client’s subsidiaries and holding companies.
Industry experts believe the extended restriction may limit companies from accessing specialised advisory services from firms that possess deep knowledge and expertise in their business operations. At the same time, the proposal could encourage companies to separate their audit and consulting engagements by appointing large firms for advisory work while assigning audit responsibilities to smaller firms.
The amendment bill, introduced in Parliament by the government on March 25, has now been referred to a Joint Parliamentary Committee (JPC) for further review and discussion.
Several professionals from the audit industry have raised concerns over the proposed rule, stating that the three-year cooling-off period is considerably stricter than the existing framework. They also highlighted that the restriction would not be limited to the primary audit client alone, but would additionally extend to the client’s subsidiaries and holding companies.
Industry experts believe the extended restriction may limit companies from accessing specialised advisory services from firms that possess deep knowledge and expertise in their business operations. At the same time, the proposal could encourage companies to separate their audit and consulting engagements by appointing large firms for advisory work while assigning audit responsibilities to smaller firms.
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