Indian government wants market review of Big Four

The Indian government wants the country’s ant-trust body to assess whether the Big Four auditing firms are harming competition, according to a senior government official.

The Competition Commission of India (CCI) has been called upon to conduct a survey or an investigation to determine whether the Big Four firms are abusing their dominant position in the audit market. This follows similar reviews into the sector which have been taking place in the UK.

The government official, who spoke anonymously, said: “If you look at the top 500 companies in India, they are totally dominant and the Big Four seem to be sharing the work. Whatever be the reason there seems to be entry barriers,” the official told reporters.

“The CCI should look into the dominance of these four global auditors and whether they are thwarting competition”.

India’s Ministry of Corporate Affairs, which holds the same view as the official, is yet to send and formal request to the CCI to open an investigation.

The Big Four undertake the majority of auditing work for the top 500 companies that trade on India’s National Stock Exchange (NSE), doing 60% according to corporate data tracker NSE Infobase.

The call for the anti-trust review comes at a time when the Big Four – PwC, KPMG, Deloitte and EY – are all facing increased scrutiny in India as well as many other international markets.

The firms have all already faced sanctions in recent years. All local units of PwC were barred in India from auditing any listed companies for two years after a prove into a decade-old accounting fraud, and an EY firm was also barred last month from conducting certain statutory audit assignments until April 2020.

More recently, Deloitte and a KPMG affiliate are in a legal battle with the Ministry of Corporate Affairs which wants to ban both firms for five years on allegations they violated several auditing standards at Indian financial firm IFIN, a unit of IL&FS. Both firms deny any misconduct.

The government has also alleged Deloitte breached company law that prohibit auditors from rendering certain other services by offering such services to IFIN.

According to the government official, India is considering capping the revenue an accounting firm can earn by offering non-audit services to a firm it is auditing, and whether there should be a ban on an auditor’s parent firm offering tax advisory solutions.

“We are studying the aspect of independence of auditors and various conflict of interest issues,” said the official.

Losing international auditors would be a blow to Indian businesses. While the country has thousands of auditing firms, a limited number have more than two dozen partners.

Indian business executives say they consider having one of the Big Four on board as an independent executive a big comfort, and foreign investors and multinationals say that having the Big Four’s experience is vital to attract foreign investment.

One of the largest cases in India, that of IF&FS, saw the company default in the summer of 2018, leaving $14bn in debt. Investigators have alleged gross misconduct, resulting in four arrests made so far.

However, the structure of IF&LS was so complicated that getting a comprehensive view of its position was all but impossible. More than 50 firms audited various parts of the company under local laws that often did not allow for independent oversight.

For some, blaming Big Four auditors in cases like this seems unfair and there are suspicions that the firms have come under fire because they make an easier target than the state entities that serve as owners, managers, debtors and creditors.

Global auditors have faced backlash in other countries as well. KPMG is losing many clients in South Africa following allegations of fraud, Deloitte is under investigation in both America and Malaysia, and at home in the UK they are facing threats of a break-up after a number of failures, most notably Carillion, Patisserie Valerie and BHS.

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