Some provisions of the Companies Bill, including rotation of directors and auditors, should be made applicable to listed entities and then extended to others based on the experience, a top official of audit firm Grant Thornton has said.
"I am very glad to see the long awaited Bill go through and all steps that even only have a perception of increasing corporate governance should be hailed," Grant Thornton India LLP National Managing Partner Vishesh C Chandiok said.
Chandiok further said "provisions like those on rotation of directors and auditors, whilst again welcome, should first be applied to a small subset of the 8000 listed companies, and based on experience extended further."
The Lok Sabha yesterday passed the Companies Bill, marking a significant step towards making corporate legislation contemporary and in line with current business practices.
Without testing mandatory firm rotation on a small group of companies and knowing the potential impact, both positive and negative, its implementation appears to be another regulation based on a leap of faith rather than reasoned merit, Chandiok added.
Meanwhile, according to a survey by Grant Thornton, a clear majority of businesses across India believe there is need for a more diverse audit market as 79 per cent think it would help market confidence if every large public company was jointly audited.
While, 79 per cent favour joint audits, 66 per cent support the mandatory rotation of audit firms to address the risks of 'over familiarity' between the auditor and the audited company.
There also appears to be a strong support for joint audits over mandatory firm rotation in India. The rationale for this perhaps is that the appointment of auditors, even with rotation, will remain with the company, which in some investors' eyes represents a conflict of interest, with no other enhancement of the checks and balances being put in place, the survey said.
The survey was conducted by a leading global independent research agency (Experian) in August and September 2012 as part of the Grant Thornton international business report, a quarterly global business survey of 3,000 businesses of which 100 were from India.