In a move that signals the government's intent to allow foreign audit firms to register and operate directly in the Indian market, the Ministry of Corporate Affairs has written to the Institute of Chartered Accountants of India (ICAI) to seek its views and recommendations on the government proposal. 

Currently, Indian laws don't allow any multinational accounting firm to be registered in India as auditors. The thinking within the government is that as part of an ongoing reforms process, the services sector should also be liberalised and global auditing firms could be allowed to operate directly here to make the profession more competitive and robust. 
The ministry has written to the institute on August 10, said ICAI president M Devaraja Reddy . The institute is set to discuss this proposal in a meeting to be held on August 24 and then respond to the the request, he added. 

The government will have to amend the Chartered Accountants Act, 1949 that regulates the accounting profession in India to allow foreign firms to operate in India. 

Currently, MNC professional services firms that offer auditing services in India, including the Big Four - EY, PwC, Deloitte and KPMG - audit Indian companies through a bunch of their network or affiliate firms. 
Though for all internal purposes, the accounting practice in any of the Big Four is treated just as any other practice area like tax, transactions, or advisory , but on paper, the affiliate firms are run as separate partnerships. 

If the Indian government does allow direct entry, more global firms are likely to invest big in their India network and also the market could see the entry of new players. 

"Given the significant exposure of global investors in Indian firms, it's natural to ask for an auditor who they are more comfortable with. More global players will mean more choice and better quality of services. It will also enhance the credibility of Indian markets," says the CEO of a global firm. 

For Indian audit firms, the move could spell further trouble, as they have been steadily losing the most lucrative audit assignments to the Big Four over the past two decades. 

The four global firms now dominate the book-keeping business in India. As it is, the mandatory audit rotation brought in by the Companies Act 2013, is set to kick off from April 1, 2017 and that will further see a movement of big accounts away from Indian firms towards the Big Four and other two prominent network firms, Grant Thornton and BDO. 

But in India, 62 per cent of the BSE 500 companies, including some of India Inc's biggest firms, are still not audited by the Big Four.For example, Reliance has had Chaturvedi & Shah as auditors for decades, L&T books have been audited by Sharp & Tannan and Hindalco had stayed on with Singhi & Co for long time. 

In China, the Big Four lost domination to local firms after the government brought in regulations that were unfavourable for the global players. Indian accounting firms are also betting on government regulations that will keep their interests protected. 

"The government will have to find a middle ground. It will have to create a regulatory framework that allows the global firms to invest and practice, also keeping in mind the concerns of the Indian accounting firms which service a large section of Indian companies, both big and small," said the CEO of a leading Indian accounting firm.