Big-Four Audit Firms accuse ICAI of Differential Treatment after EY Affiliate Misconduct Order

Large firms argue that while over 100 domestic audit firms have international affiliations, ICAI targets only the prominent names
Big-Four Audit Firms - ICAI - Differential Treatment - EY Affiliate Misconduct - taxscan

One week after the Institute of Chartered Accountants of India ( ICAI ) took action against S.R. Batliboi & Co ( SRBC ) and its network firms, major audit firms have accused it of bias towards mid-sized and small audit firms as well as individual auditors.

Large firms, speaking to FE, have also questioned the fairness of ICAI’s rulings, noting that the members issuing orders against the Big Four firms are in direct competition with them. They highlighted that the ICAI council, elected by its members, historically doesn’t include partners from large audit firms in the election process.

Many members within ICAI, not part of the Big Five firms, significantly influence the council’s decisions. A partner at a top audit firm, speaking anonymously, emphasized the importance of keeping small and mid-sized practitioners satisfied.

When contacted, an ICAI spokesperson declined to comment. Large firms argue that while over 100 domestic audit firms have international affiliations, ICAI targets only the prominent names. They stress that international affiliations are vital for capacity building, aiding in the development of common tools, technology platforms, training modules, and governance structures.

The issue of differential treatment between large and mid-sized firms was evident in recent ICAI rulings. For example, when penalizing SRBC and its affiliates, the fine and duration of removal from the register of members differed significantly from a similar case involving Sharp and Tannan. This discrepancy, along with the withdrawal of international networking guidelines by ICAI, has drawn criticism from senior partners of audit firms.

Experts highlight the core issue of the independence of domestic firms within larger global networks. The latest ICAI order pointed out practices that could compromise this independence, leading to accusations of professional misconduct. However, proponents of global networking argue that it is essential for staying competitive and generating better fees.

Several domestic affiliates of the Big Four have obtained stay orders from various High Courts against ICAI’s disciplinary actions. This conflict between ICAI and the Big Four traces back to 2009, marked by a report from ICAI’s high-powered committee against Big Four audit firms, and further escalated with a 2018 apex court directive to regulate multinational accounting firms ( MAF ).

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