Rotation of audit firms is not the right path to ensure transparent audit of companies, says the global chairman of PricewaterhouseCoopers, Dennis M Nally.
In a long chat with FE, Nally, who took over the corner room at the world?s leading accounting and audit firm in July last year, said; ?We can live with it (in India) if it comes, but I think you lose an incredible amount of institutional knowledge into large companies.?
Last week, in an interview with FE, corporate affairs minister Salman Khurshid said in principle he favoured rotating auditor firms. This is something Parliament?s standing committee on finance is also expected to recommend in its report on the Companies Bill.
One of PricewaterhouseCooper?s related entities has been indicted for helping in India?s largest ever accounting fraud at erstwhile Satyam. But, according to him, rotation of auditors was not the antidote to such frauds. ?Only two countries, as far as I know (Brazil and Italy) practice mandatory rotations and I understand Brazil is planning to change it.?
Nally?s plan is to amalgamate all partnerships and related entities of PricewaterhouseCoopers in the country with the parent organisation. ?We are waiting for more clarity on the Limited Liability Partnership Act, to get this underway?. He acknowledged that the Satyam case has led to a large-scale shake-up in the Indian operations in his firm and bringing all the related entities, numbering more than 10 at present, within the gamut of one organisation was the way to go ahead.
The change will be the largest ever reorganisation of the network of firms under the PwC banner which have been operating in India for the past 135 years.
The model Nally espoused is the one under which the global consultancy firm operates in most countries and would now make the top leadership directly responsible for all audit, tax and accountancy practices of the firm.
On the global scenario post the global meltdown, Nally was sure that along with investment bankers and credit rating agencies, accountancy firms would now have to move up the learning curve. ?In the next few years, we must ramp up our ability to provide meaningful financial information to investors?. That meant developing ways to count the ?soft? strengths of companies, like their human talent and their commitment to environment concerns. He was sure that investors will demand more such information, going forward.
Nally linked his concerns on these issues with the current rush among financial sector regulators to migrate to the new accounting standards?IFRS by April 2011. India too has also set out a time path for the companies to graduate to the platform. ?IFRS as being seen as the one silver bullet to sort out all woes of the current accounting regime, but this may not work out?. As an example he said the problems of overstating the value of an investment, inherent in the mark-to-market accounting system, could be replaced with IFRS accounts where each major country allowed deviations. ?The standards will be as disparate as today?, he said, and pointing out that more time was needed to sort these out.
Incidentally, these concerns have been recently reflected by others, too. The Securities and Exchange Commission, the stock market regulator of the USA, has asked for a deeper study of the issues involved in the migration.