Govt Mulls Size Threshold for Auditors of Large Companies
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Among the options being weighed are prescribing eligibility standards for audit firms, which oversee financial accounts of large listed companies, through means like a threshold size.
In recent months, several instances have cropped up where companies with large public floats get their accounts audited by tiny, unknown audit firms, causing apprehensions among investors about the quality of their reports. The most prominent instance is the Hindenberg Research report revelation that independent auditor for Adani Enterprises and Adani Total Gas, “hardly seems capable of complex audit work”.
The sources insisted that the matter is still at a nascent stage and would require more discussions.
“The issue is being looked into, given recent concerns on the (small) size of some audit firms and their capacity to take up huge audits. But it also needs to be kept in mind that smaller auditors continue to be at a disadvantage compared to the Big Four firms,” said a source privy to the development, adding that most large companies continue to use the services of the network firms of the Big Four —KPMG, Deloitte, EY and PwC.
More deliberations will also be needed before a final decision can be taken and it will have to be a balancing act, the source further said, adding that the interests of smaller auditing firms also need to be borne in mind.
The Hindenberg report noted that the independent auditor for the two Adani firms is a tiny firm called Shah Dhandharia, which seems to have no current website. Further, historical archives of its website show that it had only four partners and 11 employees. Similar issues had also cropped up when financial irregularities around the erstwhile Punjab and Maharashtra Cooperative Bank (PMC Bank) had been unearthed and questions were raised around its auditors. (Source - Surabhi from Financial Express)
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