DRAFT STORY 1

India Inc opposes the adoption of Joint Audits

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.

CII, in its suggestions on the Joint Audit, has said that looking at practices internationally, the
“joint audit requirement is prevalent only in one large economy that too for a select class of
companies. on the decline as most nations This is after the experience of a couple of countries
such as Canada and Denmark suggesting that mandatory joint audits 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 ie there was no
visible impact in audit quality, which led to these countries discontinuing mandatory joint
audits.

India Inc too has put across its discomfort towards the idea of Joint Audit owing to unnecessary
costs on corporates and no positive impact on exacerbating rather than mitigating audit
risksquality. Based on several years of experience, The corporates also believe that the joint
audit concept does not encourage resource and expertise-sharing even to benefit smaller firms.

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.

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.

It added that only a few jurisdictions mandate joint audits, which are generally limited to
specified sectors or sizes of companies.

The Indian framework for joint audits permits division of responsibilities amongst joint auditors.
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, higher
management time and effort and disruption to companies.”

India Inc. says it is subject to mandatory internal audits along with statutory audits and its
current control structures are adequate. In fact, tThere is the risk of accountability gaps in joint
audits, as issues may fall between cracks following the division of the work. that a Jjoint audit
only adds to its compliance and with heightened regulatory requirements impacting 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, its best left to the Boards to decide whatswhat’s best for their audit
function.

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

Lastly, Joint 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.

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