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Domestic audit firms are seeing a surge in new clients from non banking financial companies with the September 30 deadline, imposed by the Reserve Bank of India for the appointment of statutory auditors, looming ahead.
According to industry sources, almost all large non-banking financial companies (NBFCs) have appointed statutory auditors in line with the new norms.
“It is a closed chapter now. NBFCs have followed the Reserve Bank of India guidelines and most of them have appointed or are in the process of appointing auditors under the new norms,” said a person familiar with the development.
Level playing field
Domestic audit firms said the new guidelines have created a level playing field, giving them an opportunity to start audits of these firms, which were largely the domain of the Big Four audit firms in the past.
“Larger Indian audit firms are being sought after and almost all large NBFCs and banks have already appointed auditors. Those left behind are finding it difficult to get good auditors. There is a huge churn in the industry due to the new audit guidelines. Several mid-sized domestic audit firms in Mumbai have benefited from these guidelines as the value that they bring to the table is now being recognised and appreciated more by the corporate world,” said Ameet Patel, Partner, Manohar Chowdhry & Associates, and Past President of Bombay Chartered Accountants’ Society.
It is a misnomer that only the Big Four firms can deliver good quality audits and multi nationals operating or wanting to operate in India need to accept that, he added.
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Sumit Maheshwari, Partner, Ashok Maheshwary and Associates LLP, a CA firm, agreed. “The RBI guidelines have created a level playing field for mid-sized domestic audit firms and helped us in getting to audit more NBFCs than earlier. We have already onboarded some NBFCs. A joint auditor brings a second level of check and also helps audit firms gain more experience,” he said.
Others pointed out that even the Big Four auditors have Indian teams working for them.
“These large firms also use the expertise of domestic auditors but till now, this had been the near exclusive domain of these firms because they are seen as big brand names,” said another person, who did not wish to be named.
New guidelines
In a bid to ensure independence of bank auditors, the RBI issued guidelines for the appointment of statutory central auditors or statutory auditors in April this year. Under the norms, it made joint audit mandatory for entities with asset size of ₹15,000 crore and above, capped the number of audits a firm can perform in a year at four banks, and eight NBFCs and urban cooperative banks (UCBs), and reduced the tenure of auditors.
UCBs and NBFCs were given the flexibility to adopt these guidelines from the second half of the current fiscal year.
Though the norms had led to some concern, including requests to push back the guidelines, the industry has fully adapted to it now.
Nihar N Jambusaria, President, ICAI, had in May welcomed the guidelines and said, “The new norms will bring a large number of capable audit firms into the banking and financial sector audit. There is no dearth of talent and the new RBI norms will tap into an unutilised talent pool in the fraternity.”
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