Large audit firms as well as companies today reacted sharply to the resolution passed by the Institute of Chartered Accountants of India on Tuesday saying that all listed companies must rotate their auditors.
(The institute is likely to fix a 3-5 year timeframe for rotation.)
Questioning ICAI's locus standi in taking such a decision, Rathin Datta, chairman and chief executive officer PricewaterhouseCoopers Pvt Ltd said: "A person cannot take part in taking decisions in a matter in which he is interested. Every practicing chartered accountant has a vested interest in the matter of rotation. Therefore, they cannot take part in taking such a decision. The decision has to be taken by the customers and the government. The ICAI decision should be ignored as it is an association of members who have a vested interest in this matter."
"It is a matter of trust about what insights and value-addition the service provider can give to the company. I don't know whose interest will be served through such a step?" K N Memani, chairman, Ernst & Young, said.
Companies too felt that the move would only create hassles. "You need continuity of the audit firm. If you have to explain things to a new team of auditors every three years, it will take up a lot of management time," Arvind Parakh, director (finance), Jindal Strips, said.
Added CII chief economist Omkar Goswami: "It is a very negative and counter-productive move. Over a period, audit firms too develop a domain knowledge. If the firm is to be removed every three years, there will be no incentive for it to develop the domain knowledge."
The auditors were quick to point out that nowhere in the world there is a rule requiring companies to rotate their auditors.
It is noteworthy that the International Federation of Accountants has recommended a rotation of partners and the audit team doing the audit.
"The Naresh Chandra committee talked about a rotation of audit partners and client-facing employees every five years but not a rotation of audit firms," Goswami added.
It was also felt that the compulsory rotation of auditors will not result in more business for small audit firms. Instead of choosing a small firm once the time for rotation comes, companies are expected to shift to other large firms.
"I fear no loss of business," Memani added. The resolution was passed to break the alleged stranglehold of the multinational accounting firms.
The domestic CA fraternity comprises of largely sole proprietary firms.
