The Institute of Chartered Accountants of India ( ICAI ) is likely to re-introduce regulation that forbids undercutting of fees by firms. In a recent general council meeting, ICAI members discussed returning to the earlier regime when firms weren’t allowed to undercut statutory audit fees, ET reported.
This is amid rising people and infrastructure costs and shrinking margins in audit business.
The Chartered Accountants Act was amended in the year 2006 and allowed the audit firms to accept assignments lower than the previous year’s fee.
Facing severe competition since the Companies Act 2013 mandated audit rotation, firms resorted to playing the price card to win new clients to replace ones rotating out. That led to overall audit revenue pie shrinking (of BSE 500, PE-invested companies plus large private companies) by 25-30%, according to industry estimates, the reports said.
According to the report, this have adversely affected the small firms and favoured deep pockets who were able to win the big accounts by bidding lower fees.
Infrastructure and people costs and operating overheads have risen steadily, leading to margins crashing and investments lagging or on hold.
