Indian audit firms, small as well as big, face the risk of having their audit reports rejected in the European countries unless the government steps in to create an independent regulator.
The EU will not accept the audit reports of the 150-odd Indian auditing firms doing the accounts of Indian companies whose debentures or shares are listed in European bourses, unless these audit firms are registered with the EU by December 2010.
And, according to the EU’s terms, no Indian audit firm can seek registration unless India has an independent public oversight system sitting on the audit firms, and unless the firms themselves are transparent about the names of their clients, income from audit and report on how partner’s income are determined.
Rahul Roy, director of Ernst & Young, said the ministry of corporate affairs has created a quality review board with five government nominees and five members and the chairman from the Institute of Chartered Accountant of India .
However, it is not clear if the quality review board has the mandate to create a road map for an independent regulator.
“Both the government and the audit firms have to work fast to meet the deadline otherwise the Indian firms audit reports for listed Indian companies will not be accepted by EU,” Roy told members of the Bengal Chamber of Commerce & Industry at a seminar on International Financial Reporting Standards.
Top chartered accountants said that, although the quality review board is acting as a kind of regulator of the auditing firms, it is not in line with what EU wants.
The board is more into policymaking than into reviewing the work of the firms.
The ICAI will still have responsibility to review the work of the firms.
“The EU is talking about an independent regulator which will be a policy making body and also look after the work of the auditing firms. We have to see whether EU treats the quality review board as a regulator,” said a senior CA.
