DRAFT STORY 1

India Inc opposes the adoption of Joint Audits

India Inc has put across its discomfort towards the idea of mandatory Joint Audit owing to
unnecessary costs on corporates and exacerbating rather than mitigating audit risks. The corporates
believe that the joint audit concept does not encourage resource and expertise-sharing even to benefit
smaller firms. Also, the mandatory joint audit will have a negative impact on the ease of doing
business.

CII, in its suggestions on the Joint Audit, has said that looking at practices internationally, the “joint
audit is on the decline as most nations which once had such audit mandate have discontinued it,
citing the names that both Canada and Denmark stopped the requirement in 1991 and 2005,
respectively as they were costly and ineffective.

According to estimates from France, the joint audit approach leads to a 20% additional cost as
compared to the single auditor approach. With increasing costs of coordination and documentation
and a loss of time in finding joint auditors’ consensus, the joint auditor approach may well become
even more costly and time-consuming. There may be situations where the global auditors are
different than the joint auditors in India, and this situation is only going to add complications for the
Indian companies and increase the cost of audits because of duplication, coordination, and
differences in audit approaches. This would have a negative impact on the ease of doing business.

Looking at practises internationally, the joint audit is on the decline as most nations that once had
such an audit mandate have discontinued it. In Denmark, listed and state-owned companies were
required to be audited by two mutually independent auditors from 1930 through 2004. While the
auditors had joint liability in the audit, Danish law did not specify how the audit work or audit fees
were to be shared between the two auditors. In 2001, the Danish Parliament adopted the new
Financial Statements Act, which called for an end to the mandatory joint audit by 2005. This
legislative change was motivated by unnecessary high audit costs and an assumption that a single
auditor can provide a more holistic approach. France is the only major economy that mandates joint
audits. Interestingly, large French companies that have international operations do not necessarily
appoint joint auditors in their international operations outside of France, where joint audits are not
mandated.

Further, the US, UK, EU, China, Brazil, Russia, Indonesia, South Korea, and Turkey have not
mandated joint audits. Countries like Canada, Sweden, and South Africa have abolished such laws,
primarily because of increased costs and no apparent beneficial impact on audit quality.

It is pertinent to say that the Ministry of Corporate Affairs in April 2022 invited
comments/suggestions on the Company Law Committee (CLC) Report from all the stakeholders. As
a part of the recommendations, the Committee has suggested that the Companies Act 2013 may
suitably be amended to enable the Central Government to mandate joint audits for such class or class
of companies as may be prescribed by the Central Government. Earlier, govt appointed Ashok
Chawla Committee has rejected the concept of mandatory joint audit for India and viewed joint
audits as "not a practical approach in India given the existing gaps and divergences between the audit
firms in terms of size, resources, expertise, and audit methodology, and the inherent limitation on
clarity about the respective responsibilities of the audit firms."
CII adds further that “Joint audit is not “four eyes” on the financial statements; rather, there are
“two sets of eyes” each looking at different parts of the financial statements (i.e., joint audits do
not mean that audit work is re-performed by a second auditor, nor that two separate audits are
performed). If the ‘four eyes’ principle is to be met, then both Joint Auditors would be required to do
a separate audit resulting in duplication of work, higher fees and disruption to companies.”

India Inc. says that a joint audit provides higher assurance to users of financial statements only when
there is no work sharing. Instead, both auditors perform a full audit. In the absence of this, they do
not see any benefit from a joint audit; instead, there is a concern about risk due to none of the joint
auditors visiting the entire audit. This also has implications for the company's cost incurred time and
effort to audit its financial statements.

There is also the risk of accountability gaps in joint audits, as issues may fall between cracks
following the division of the work.

Joint audit significantly reduces choice, particularly with mandatory firm rotation. Besides,
mandating joint audits in combination with mandatory firm rotation would also result in problems,
particularly in specialised industries.

It is pertinent to say that the Ministry of Corporate Affairs in April 2022 invited
comments/suggestions on the Company Law Committee (CLC) Report from all the stakeholders. As
a part of the recommendations, the Committee has suggested that the Companies Act 2013 may
suitably be amended to enable the Central Government to mandate joint audits for such class or class
of companies as may be prescribed by the Central Government. Earlier, govt appointed Ashok
Chawla Committee has rejected the concept of mandatory joint audit for India and viewed joint
audits as "not a practical approach in India given the existing gaps and divergences between the audit
firms in terms of size, resources, expertise, and audit methodology, and the inherent limitation on
clarity about the respective responsibilities of the audit firms."

End
DRAFT STORY 2

Indian Industry Against Complete Prohibition of Non-Audit Services by the Auditors

Indian corporates are citing their discomfort over the Government’s proposal to completely prohibit
Non-Audit Services by Auditors.

Industry body CII, in its representation of the proposed rules, has said that while the list of services
prohibited for companies with public interest may be reviewed, there may not be a complete
prohibition to providing non-audit services. It may be noted that not all non-audit services create any
self-review/independence threats. The chamber has filed its replies as part of its suggestions to the
Company Law Committee (CLC) Report.
The Ministry of Corporate Affairs in April 2022 invited comments/suggestions on the Company Law
Committee (CLC) Report from all the stakeholders. As a part of the recommendations, the
Committee has suggested that the Companies Act 2013 may suitably be amended to prohibit non-
audit services by the auditors for a particular set of companies.

Certain services are required by legislation or contract to be or may be undertaken by the business's
auditors. Further, some services are most efficient for the auditors to provide because of their existing
knowledge of the company or because the information required is a by-product of the audit process
or will add to enhanced audit quality.

There is a need for clarity on attest, assurance, and similar compliance-related services (e.g., limited
reviews, group reporting under SA-600, tax audits, certification for RBI and tax purposes and similar
other services). In addition to regular statutory audits, these may not be considered under prohibited
non-audit services.

Also, the industry has sought a clear definition of “Public Interest Entities (PIE)” and
“Management Services” for non-audit services.

The industry chamber has sought that the non-audit services may be aligned with the IESBA /ICAI
Code of Ethics as these are authoritative in nature and already contain safeguards for ensuring auditor
independence.

A complete restriction on non-audit services would be inconsistent with the established international
practices (IESBA/SEC). It would result in an artificial limitation on the ability of companies to
appoint a firm of their own choice.

End