A key amendment in the Corporate Laws (Amendment) Bill, 2026 restricting auditors and audit firms from providing non-audit services after their term completes, could potentially increase the compliance cost for domestic companies by 20-30%, top auditors working with Big Four firms told FE. These auditors, while opposing the rule, said that such restrictions don’t exist anywhere else in the world, and would result in service quality deterioration as companies will have to rely on lower-tier firms to deliver crucial services like tax advisory, internal audits and consulting.
As per the Bill, which has been referred to the joint parliamentary committee (JPC) for detailed scrutiny, Section 144 of the Companies Act will be amended to include a new provision that prohibits auditors or audit firms from giving non-audit services to a company or its subsidiary for a period of three years after their term as statutory auditor has completed. In India, mandatory rotations of statutory auditors after every five years and audit firms after every 10 years are provided under Section 139(2) of the Companies Act.
Compliance Crunch
“Firms will have to charge higher audit fees to compensate for the potential loss of earnings by not providing non-audit services. Large firms often rely on future advisory revenue from the same client,” said a senior official at a Big Four firm, on condition of anonymity. A partner at another big audit firm said that the proposed cool-off period could limit the choice for companies, especially those with operations in different countries, to get their non-audit work done. “The decision will severely impact not just large audit firms, but also mid-sized and smaller firms that rely on statutory audit and ongoing advisory/non-audit work to maintain viability,” he said.
In fact, industry body ASSOCHAM raised this issue and recently submitted its recommendations to the Ministry of Corporate Affairs (MCA). ASSOCHAM’s note said that if this proposal is accepted, it will reduce choice for companies, increase costs, and accelerate market concentration.
“When auditors are permitted to offer certain non-audit services, they develop a deeper understanding of their client’s business, risks, and industry. This insight helps deliver higher-quality audits and supports stronger governance and compliance frameworks,” the note stated.
Industry Alarm
Prior to this, industry body FICCI also voiced its concerns and asked the MCA to omit this requirement. “With top-tier firms excluded for long periods, businesses would be forced to rely on smaller firms, which can compromise service quality in complex areas requiring global reach and deep technical knowledge. Smaller firms may not always possess the capacity, reach or specialised skill sets necessary to service such organisations, especially in areas involving complex regulatory, cross-border or sector-specific requirements,” the FICCI note said.
Section 144 of the Companies Act restricts statutory auditors from rendering non-audit services like internal audits, actuarial, investment banking/advisory, management, outsourced financial services, and bookkeeping services to their clients. However, there are many other services they can offer to their clients and their subsidiaries, including administrative, consultancy, forensics, fact-finding, diligence services, etc.