Newspapers recently reported that the Prime Minister’s Office (PMO) is looking at creating large home-grown consulting and audit firms that can rival the multinational ‘Big 4’ firms. In audits, multinational firms (MNFs) operate through network firms in various countries under a common name. For those who are not aware, the Big 4 are: Deloitte, PWC, EY and KPMG. The other MNFs are smaller than the Big 4, but vastly larger than purely Indian firms and therefore, logically should also be taken into account.

Incidentally, the issue of a few MNFs dominating the marketplace is not peculiar to India. In the UK, the top 100 companies listed in the FTSE Exchange are/were all audited by the Big 4 and the regulators have pondered over the acceptability of oligopolistic dominance in the marketplace. Interestingly, some of the MNFs outside the Big 4 (also present in India) have themselves vociferously argued against the dominance of the Big 4 in the US and European markets.

About three decades ago, there were the Big 8, which became the Big 5 through mergers. And then one of the firms went out of business on account of a major audit failure, thus becoming the Big 4. The dominance of the Big 4 is the direct result of the economy opening up in 1990 to foreign investment.

Brand power

The discussion is not about pulling down the MNFs, rather, to enable Indian accounting firms evolve into challenger-firms that would offer healthy competition. The MNFs enjoy a high degree of trust in the global marketplace, something that they have earned over the years. While Indian firms have also commanded recognition for their trustworthiness and quality of work, it tended to be local and unknown abroad.

As the Indian economy globalised, the governance practices, the accounting frameworks, etc., became aligned with global practices. The overseas investors and lenders naturally preferred a system which provided them with a degree of comfort in key functions such as accounting and audit of financial statements.

Risk of de-skilling

Depriving the Indian profession of opportunities would mean de-skilling lakhs of chartered accountants just when the growing economy needed them. There is a historic precedent. Over five or six decades ago, audit of banks and insurance companies was dominated by a handful of firms. Once these entities were nationalised, by way of a collateral benefit, the skills and the knowledge required for audit of these entities were disseminated to a vast number of professionals.

The Indian accounting qualification is world-class and it would be a colossal national waste if it were to be neglected.

Joint audit, a solution?

In practice, very often, where overseas investment comes in, the shareholders agreements and the loan documents insist on appointment of the Big 4. Whether the Competition Act, 2002, which is designed to prevent anti-competitive practices, is violated is a question that requires examination. However, this is not an ideal solution since it is time-consuming.

One possible solution is that, as was contemplated about five or six years ago, the top companies could be asked to have joint-auditors comprising one MNF auditor and one Indian auditor. However, as a corollary, it must be ensured that the audit fee should be shared equally and not skewed in favour of the MNF firm as usually happens.

Group audits

Group company audits — that is, where a parent company’s financial statements are consolidated with its subsidiaries, associates and joint ventures — are required to be conducted in a seamless manner. Generally and in some jurisdictions specifically, the parent company auditors bear the responsibility for the overall group consolidated statements with the result that the parent company auditors are reluctant to share group audits. While Indian firms do not have the resources and the reach that the MNFs have in global group audits, one way to encourage the distribution of audits of is by appointing Indian firms for auditing the local subsidiaries, etc.

The National Financial Reporting Authority (NFRA) recently enhanced the oversight of the parent company’s auditors over the auditors of subsidiaries, associates, and joint ventures where other auditors are involved. This has enhanced the involvement of parent companies’ auditors.

Years ago, a view had gained currency that the size and the magnitude of resources controlled by the Big 4 give them a high degree of independence and an invulnerability to being influenced by clients. However, this is a specious argument.

As has been said time and again, independence and integrity, the key attributes required in auditing profession, are a state of mind that no one group can claim ownership of.

Undoubtedly, the contribution by the Big 4 to the Indian auditing profession is immense. Faced with competition and client-expectations, Indian firms are enhancing their technology resources on a continuous basis.

What the Big 4 does extremely well is that, knowledge gained is valued, stored and the accessibility within the firms is ensured. This coupled with the need for detailed documentation is another area in which Indian firms have invested substantially and have enhanced quality control mechanisms.

The Institute of Chartered Accountants of India (ICAI) has been guiding all the way. Recently, the ICAI approved a draft regulatory framework for Indian CA firms to tie up with global accounting networks. The proposal to build Indian firms that could face up to the Big 4 and other MFNs is not a day too soon. It needs a level-playing field which is where the Central Government can play a major role. And so the message to the Indian professionals — please heed the clarion call.

The writer is a chartered accountant

Published on June 13, 2025