Report: No Client Should Exceed 10 Percent of Audit Firm Revenue

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Nov. 30 – A corporate governance committee established by the Indian Industry (CII) said in a report that no corporate client or group should comprise more than 10 percent of an audit firm’s revenues.

The recommendations are part of government efforts to prevent conflict of interest scenarios with the 10 percent limit applicable to earnings of the audit firms’ subsidiaries, associates or affiliated entities.

The committee headed by former cabinet secretary Naresh Chandra was quoted by The Economic Times as saying that  multinational consulting firms undertaking audit assignments through their affiliates in India, such affiliations could lead to “too much of revenue dependence on a particular client causing potential threats to auditor independence.”

The recommendations to restrict the industry is in reaction to the Satyam Computer Services scandal where the leading outsourcing company’s  chairmain and co-founder, Ramalinga Raju, admitted to falsifying earnings and assets documents for years.

The group also advises that government manage the quality of auditing standards. Currently, industry standards are overseen by the Institute of Chartered Accountants of India.

According to the committee companies must be required to obtain a certificate from its audit company stating that together with its consulting and specialized services affiliates, or network entities, it has not done any prohibited non-audit assignments for the company and is independent from the client firm.

Statutory audit in India is currently limited to local firms. Foreign audit companies work through informal tie-ups with domestic accounting firms while they themselves provide non-audit services to the company says The Economic Times.