One of the problems we face around the world is that of the big 4 audit firms (Deloitte, KPMG, EY, PWC) auditing a disproportionate number of large corporate audits.
Challenges of Auditor Monopoly: The Case of the Big Four
It is feared that this apparent monopoly of a few auditing entities from which to choose as a company’s auditor has a number of disadvantages.
The Companies Act 2013 attempted to counter this delay by the Big Four in the audits of large corporations by introducing mandatory audit firm changes after several yearsThe Big 4 firms began reorganizing auditing activities, initiating a game of musical chairs. The 4 types of cards in the deck have not changed.
One has to ask whether the multiple demands to comply with disclosure and reporting requirements are driving large corporate managements behind the security shield of the Big 4.
Challenges Facing Non-Big 4 Audit Firms: Quality, Scale, and Management Comfort
The management of most large listed companies (promoter/board and senior accounts and audit staff) will tell you that it is they are uncomfortable that a non-Big 4 Indian audit firm will properly comply with audit compliance disclosure requirements.
The real issue is the quality of human resources within the audit firm and the ability of non-Big 4 audit firms to scale to a size and service quality offering that management is comfortable with.
Let’s be honest. The practice of auditing is losing its charm across accounting firms in practice around the world. In fact, the problem becomes serious that many students do not consider becoming a professional accountant (ie Chartered Accountant or Certified Public Accountant) in India and overseas after graduation. Responsibility for financial and corporate reporting becomes difficult and remuneration levels are considered insufficient compared to the risks and responsibilities of preparing and auditing corporate finances.
In listed companies, one can observe the protection of minority shareholders. However, listed and unlisted entities have other stakeholders like financiers, employees, government, creditors etc.
There are many questions that arise in the corporate financial preparation and audit environment. They are:
All corporate financial reporting is short, especially for listed companies. Will financial statements and reports be reliable if corporate and audit company accountants decline?Are reporting requirements so demanding that audit practice should consolidate audit work and scale?
Are we heading toward a situation where a few firms audit all large organizations while other large/medium/small audit firms retain competitive and often unprofitable work?
Why do the Big 4 businesses’ audits seem subpar and scams are bursting in public view?
We may have lost the foundations of financial auditing and are stumbling to find the problem since we’ve come so far in compliance, reporting, transparency, mapping, and tallying.
The concept often dismisses the auditor as a watchdog rather than a bloodhound when fraud occurs. They always ask, “why have an audit?”
Addressing the Disparity: The Quest for Competitiveness in Indian Audit Firms
The Institute of Chartered Accountants of India seems to have realized the need for Indian firms to match the Big 4 in size and competence and seems to be working on some plan to encourage Indian audit firms to collaborate and compete. Audit field. While I wish them all success in their endeavours, my personal opinion is that the competition to the Big 4 MUST come from overseas (US / UK / Europe) and then it piles up in India.
For almost 45 years, I have been following audit practice in India and how famous Indian firms eventually had to come under the banner of one of the big 4 entities. Today, we are in a situation where, for the most part, we cannot boast of audit firms that would match the Big 4. This is not a desirable state.
Whenever there is an exit at the Big 4 firms, partners move en masse from one firm to another. Movement within a small restricted circle adds no value to the business environment.
Strengthening Corporate Governance through Effective Auditing and Internal Controls
Policymakers around the world must address this issue. How an audit gives you the comfort of being in control of your company’s financial affairs. Let the Big 4 grow to the Big 40 and then to the Big 400. We need that.
We can’t be in a situation where audit doesn’t get the best HR to support it, or the audit practice isn’t seen as important enough and profitable enough. Adequate internal controls must also be in place at the corporate level. At the highest corporate level, the board of directors (including promoters, managing directors, independent directors), audit committees must regularly review the strength of internal financial controls and take corrective action where there is a sense of deficiency.
If the internal business group believes that appropriate controls are in place within the organization, the likelihood of fraud is reduced. The external auditor must monitor whether there is an attempt to distract attention, withhold information and create an audit plan based on this.
We must never lose sight of the fact that corporate account integrity and trust are the pillars of corporate governance and corporate democracy.
