An overwhelming majority of Indian companies may fail to comply with new rules that require them to compulsorily change the auditor.
The Companies Act 2013 introduced the Mandatory Firm Rotation (MFR) norm to reduce the risks of excessive familiarity and bring in much-needed transparency into the auditing process. Audit firms completing a term of 10 years or more need to be rotated at all listed companies and certain classes of unlisted companies, beginning April 1, 2017.
However, a survey done by Grant Thornton in India with Prime Database found that 82 per cent of the respondents are “yet to start planning or have only an informal plan agreed with the board of directors to meet the requirement of Mandatory Firm Rotation.”
This, even when 78 per cent of the respondents agreed that MFR would improve financial reporting by corporates.Intent to comply
However, companies do intent to comply, if the survey results are to be believed. Over 70 per cent of the respondents said they would comply with or have already taken steps to comply with the new rules, and 21 per cent plan to swap internal auditors with existing auditors to satisfy the MFR requirements. Recently, proxy advisory Stakeholders Empowerment Services questioned FMCG-hospitality conglomerate ITC’s plans to ratify Deloitte Haskins & Sells as statutory auditors for FY16-17. SES had said in a report that the appointment violated MFR requirements which cap the number of years that auditors of the same “auditor network” can be appointed to a company.