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CAs worried over possible ban on non-audit services

Richa Mishra
K.R. Srivats

New Delhi , Aug. 25

THE controversial issue of non-audit fees that an auditor can receive from a client for whom statutory audit work has been performed has resurfaced.

The concept paper on the new Company Law now seeks to prohibit auditors from offering certain non-audit services, which would be mentioned by the Government from time-to-time. Even as the regulatory intent of the Government is to ensure independence of auditors, the proposed provision in the concept paper is giving jitters to the auditing community.

Their fear is that this provision in the concept paper, if enacted in the current form, may lead to a complete ban on providing of non-audit services to a client to whom a member of the Institute of Chartered Accountants of India (ICAI) is performing statutory audit work.

"To ensure independence of auditors, the Government can tomorrow say that an auditor cannot even earn Re 1 from any non-audit service to the same client for whom he is the statutory auditor. This is the worry as currently the institute permits members to offer certain non-audit service like management consultancy so long as the fees are within a cap," a senior ICAI official said.

The official pointed out that the steps proposed by the concept paper are in line with the thinking in the West, where after the recent corporate failures the statutory auditors have been completely barred from providing management consultancy services.

As regard ICAI, the institute had in March 2002 stipulated that a member cannot accept any non-audit work on a remuneration exceeding the prescribed audit fee for an undertaking in which the member has been appointed as a statutory auditor.

It had held that the cap on non-audit services would be applicable only in respect of undertakings that are a PSU/Government company/listed company and other public companies having a turnover of more than Rs 50 crore in a year.

ICAI had specifically mentioned that non-audit service would include management consultancy and all other professional services permitted by the Chartered Accountants Act, but would not include audit under any other statute, certification work required to be done by the statutory auditors and representation before any other authority.

When asked to comment on the proposed regulatory regime for non-audit services, a senior ICAI official said that the auditing community would not prefer a "blanket ban" on non-audit services under the garb of ensuring independence of statutory auditors.

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