The Ministry of Corporate Affairs (MCA) is looking at tightening the rules for audit firms in the country. It is soon likely to bring an amendment to the Companies Act, 2013, to debar these firms from offering non-audit services to their clients.

Recently, the role of auditors came under scrutiny during the investigation into the affairs of the Infrastructure Leasing and Financial Services (IL&FS) by the Serious Fraud Investigation Office (SFIO). 

“There may be a relook at the non-audit services. The issue is whether audit companies should be allowed to offer non-audit services or not. They do packaging and offer services which are not allowed. They can camouflage it,” a senior official in the ministry said.

The role of auditors came under scrutiny during the investigation into IL&FS by Serious Fraud Investigation Office

A committee set up by the ministry to suggest changes in the Companies (Auditor’s Report) Order (CARO) is likely to submit its report soon. “The ministry may move an amendment to the Companies Act during the upcoming session of Parliament or maybe next,” another official said. 

Non-audit services are professional services offered by auditors during the period of an audit engagement and are not connected to an audit or review of institutional financial statements. 

As per the Companies Act, 2013, while statutory auditors are barred from offering to their clients eight services that include internal audit and actuarial and investment banking, they are allowed to provide services such as tax audit, secretarial services, advising on mergers and acquisitions and transfer pricing-related services.

“It is seen that the audit firms offer non-audit services through other companies in their network. This becomes a case of conflict of interest. We have seen it happening in the case of IL&FS,” said another official. #casansaar (Source - DNA)