The Committee of Experts has submitted its report on Regulating audit firms and the Networks to the Government of India through the Secretary, Ministry of Corporate Affairs. The Committee was constituted on April 20, 2018 pursuant to the directions of the Hon'ble Supreme Court in the matter of S. Sukumar versus The Secretary, Institute of Chartered Accountants of India.  The Committee consisted of Shri Anurag Agarwal, Joint Secretary, Ministry of Corporate Affairs,  Shri Sudhanshu Pandey, Additional Secretary, Department of Commerce and Shri Ravinder, Joint Secretary, Department of Industrial Policy and Promotion.

The report addresses the issues raised by the Supreme Court with a focus to strengthen the legal regime of auditors and promote development of the audit profession in the country. The Committee scrutinised the networking arrangements adopted by the big four audit firms commonly referred as multi-national accounting firms to understand their legal structure and method of operation. The Committee also addressed serious concerns like conflict of interest and transparency arising out of non-audit services provided by auditors and their network, and suggested necessary checks and balances. Further, the report deals with the issue of concentration of market power which is another contemporary problem in the market for audit services.

The global trend indicates a clear shift from self-regulation to independent regulatory structure in the domain of audit regulation due to the failure of self-regulatory model in regulating the professionals. In light of these developments, the Committee found establishment of the National Financial Reporting Authority (NFRA) as a necessary institutional reform which would align the Indian audit landscape with the global position. The Committee also recommended measures to further strengthen the operation of NFRA to address contemporary challenges in relation to auditors, audit firms and networks operating in India.

Since it is important to facilitate a business friendly environment for corporate and professionals in India, Indian laws and regulations on professional services needs to keep pace with changing market dynamics. Taking note of this requirement, the report delves into critical issues like advertising, multi-disciplinary practice firms and branding and suggested measures to rationalise the existing laws. These measures are expected to not only enhance the standards of services offered to corporates, but also facilitate the audit firms to expand in size and operation to compete globally.

For arriving at the findings and recommendations, the Committee adopted a holistic methodology which included internal meetings, engagement with relevant stakeholders, examining past reports discussed in the Supreme Court's judgment, global literature and best practices in the auditing landscape.

The Committee was ably supported by the research work of the National Institute of Public Finance and Policy.

Regulation of audit firms: strengthen independent oversight and checks on networks to address conflicts and market concentration. The Committee reviewed structures and operations of large audit networks, found risks from conflict of interest, non-audit services, opacity and market concentration, and recommended regulatory checks and institutional reform by establishing and strengthening the National Financial Reporting Authority to shift from self-regulation to independent oversight and to address contemporary challenges posed by auditors, audit firms and networks.