No cap likely on audit firms’ clients in Cos Bill

The big four audit firms can breathe easy as the Ministry of Corporate Affairs (MCA) has decided there will be no cap on the number of companies an audit firm can take on as clients.

A source in the government told The Indian Express that the ministry has decided to drop the recomendation of the Parliamentary Standing Committee on Finance to restrict the number of companies beyond which audit firms shall not be auditors.

It is also likely to retain the current definition of listed companies instead of the narrower definition of listing suggested by the the committee, viz. an alteration to include a reference to equities and in the case of debt, of having been issued to public.

The current definition instead makes no such distinction and says a company is listed if any of its securities, equity or debt are traded in a stock exchange.

The broader definition has helped the government in the case of Sahara debentures for instance as they were treated as listed and hence under the purview of Sebi. Despite the changes the ministry is hopeful the amended Companies Bill would be able to sail through in the monsoon session.

On auditors, the standing committee in its report on the Bill, under Clause 141 (3), has suggested that the government should prescribe the number of companies beyond which a person shall not be appointed as an auditor. But the cap will run through for the number of companies an individual auditor can service, the source said.

For this purpose the ministry is expected to circulate a Cabinet note on the Bill by the end of this week after making the changes from the standing committee report.

The relaxation of the cap follows a strong round of lobbying made by the top audit firms as it would have impacted their bottom line significantly.

In the final note, the ministry has accepted most of the committee’s recommendations, except issues like definition of listed companies. Other changes are in implications of government directives on the financial position of PSUs and the appointment for National Company Law Tribunal. (The Indian Express)