A company’s board and shareholders should appoint its auditors and the decision should not be handed over to an external panel, industry leaders have said, arguing against changing the existing system of appointment of auditors.

“The selection of auditors is the prerogative of the stakeholders of the company (audit committee/board/shareholders),” the Confederation of Indian Industry (CII) has said.

The CII’s observations came in response to a consultation paper that the Ministry of Corporate Affairs (MCA) has floated, seeking to review regulations of audit services and businesses with a view to enhance the independence and accountability of audit firms.

“We believe that the rights for auditor appointment may continue to vest with the stakeholders as per the present regulatory framework. The appointment of auditors is a critical decision for the company and, therefore, may be left to the stakeholders to take, like any other critical business decision, in the best interest of the company and its shareholders,” the CII said.

BusinessLine had reported on February 25 that the Centre for Economic Policy Research (CEPR) had said the right of appointment of auditors should remain with the shareholders. https://www.thehindubusinessline.com/money-and-banking/right-to-appoint-auditors-should-remain-with-shareholders-cepr/article30911762.ece

The MCA, in its paper, has observed that in order to bring more transparency and accountability to ensure better quality of audit and reporting, the system of appointment of statutory auditors in non-government companies (listed, unlisted and private companies) needs to be reviewed.

Currently, the appointment of auditors is made by the management of the companies after taking shareholder approval at the annual general meeting (AGM).

“The amount of remuneration to be paid is also to be decided by the management. Therefore, the reliance on clients’ fees may affect the independence of an auditor,” it said.

The MCA has sought views on the feasibility of “creation and maintenance of a panel of auditors” for such companies.

Methodology for creating panel

The CII suggested that the audit committee of companies comprising independent directors be the committee to select auditors and directly interact with the audit firms and be approved by the board. “This would ensure the independent selection of auditors, reducing the management-auditor nexus, if any. As far as private companies are concerned, the selection of auditors can be left to the investors/shareholders,” it said.

The Federation of Indian Chambers of Commerce and Industry (FICCI) said listed companies should be free to appoint any auditor that meets the eligibility criteria and is not disqualified.

“However, if such a panel is set up, it should provide opportunity to the companies to provide their preference of choice of audit firm for reasons like plans for international capital-raising, requirements of joint venture/shareholder agreements which mandate to have one of the Big 4 firms, etc. If the option of only mid and small firms is given, then the companies may not have confidence in the audit firm’s ability to handle the complexities of business and deliver within the expected timelines,” FICCI said.

The American Chamber of Commerce in India (Amcham) also echoed the views. “We do not believe that a panel of auditors is required to be created for non-government companies (listed, unlisted and private companies) and consequently, no methodology is required for the creation of such a panel of auditors,” it said.

The right to appoint auditors should rest with the shareholders of the company, Amcham said.

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