ETCFO Accounting Diaries: BDO India Chief bats for mandatory join audit for cos

Professional services firm BDO India’s Managing Partner Milind Kothari maintains his stance on joint audits and said he is in favour of the practice for public interest companies.

In an exclusive interaction with ETCFO, Kothari mentioned that the joint audits will balance out quality issues as well as give chance to mid-size firms to at least participate in larger audits.

It is to be noted that in accounting parlance, joint audits simply mean two auditors carry out the statutory audit and prepare a joint audit report as compared to a single auditor.

...clearly with the experience of the banking industry where it (joint audits) started much earlier even before the idea became a larger mandate for financial companies so on and so forth, I think the experience has been pretty redeeming and no one has come up to say that joint audits don’t deliver….I think joint audits will balance out quality issues…somewhere it will (also) give chance to mid-size firms to be at least participate in larger audits.

Kothari's comments came in the backdrop of joint audits trending in the audit realm in recent times as a way to improve audit quality among companies. The joint audits have become a key topic of discussion in the accounting industry amid scams and corporate failures. Joint audits are also seen as a practice to enhance competition in the markets.

Here it is worth mentioning that currently, KPMG, Deloitte, EY, and PwC occupy a cumulative market share of roughly 70%.

Earlier in India, joint audits were always a mandatory requirement for all the public sector banks and insurance companies. In April 2021, the Reserve Bank of India (RBI) made joint audits applicable for alll financial entities which hold assets worth over Rs 15,000 crore. Now, a government panel has proposed mandatory joint audits for public interest entities, though this is yet to see the light of the day.

“It has been in discussion, in the pipeline for quite some time. We might see the light at the end of the day something on joint audits in one or two years of time…,” hoped Kothari.

BDO is a global professional services firm that offers tax, accounting, assurance, digital and advisory services. The accounting firm, which began operations in India in 2012, derives about 35% of its revenues from the audit assurance line. BDO ended FY23 with about Rs 800 crore in revenues.

A contrarian view also exists in the industry. KPMG’s audit head Sudhir Soni, in an exclusive interview with ETCFO earlier this month, batted against joint audits.

“The risks in a joint audit are higher. It requires an increased need for coordination between two auditors, and also, a company may find it difficult to resolve issues when auditors have different views. Further, the joint audit also drives the cost of audits higher for companies,” Soni had expressed his reservations strongly. In the world today, only France has mandatory joint audits for companies, and there too sharing of work papers between the auditors is allowed, Soni further argued.

 

Source: Economic Times