“A daunting task to establish an Indian audit firm akin to Big 4”

Because of Finance Minister Nirmala Sitharaman’s recent statement encouraging the Institute of Chartered Accountants of India (ICAI) to try and set up an Indian auditing firm which can join the league of Big Four, the government’s ambition to create an audit firm out of India that is similar to the Big Four has once again become a talking point in the auditing industry.

Due to a number of concerns, many in the auditing community—including partners at Big 4 and mid-sized Indian firms—remain skeptical of this goal.

“Growing a big business only on the basis of audit services is hard. It is prohibited for Indian companies to make investments in other companies or accept investments from other companies. A senior partner of a Big 4 firm commented, “We are addressing the problem with infeasible solutions,” alluding to the actions taken by ICAI to establish significant domestic companies. According to ICAI, it has taken a number of actions to carry out the government’s objective, such as creating a committee to combine CA companies and releasing updated networking and multidisciplinary partnership (MDP) company formation standards.

The institution, for example, has established a committee to aggregate CA companies. This group is examining the current regulations, such as those pertaining to advertising and M&As, which impede the ability of regional CA businesses to grow. Currently, CA companies are prohibited from advertising their services under the ICAI’s code of ethics. According to the laws, the CA companies are not even allowed to approach prospective clients for business.

Despite releasing updated networking standards in 2021, experts claim that ICAI has not heard back from many CA businesses. “Since the ICAI updated its networking criteria, less than 200 companies have registered with them. This shows that the goal of these recommendations, which was to help small businesses expand, has not been achieved, according to a partner at a mid-sized Indian company.

About 75,000 of the approximately 100,000 Indian CPA businesses that are now in practice are proprietorship firms, while the remaining 25,000 are partnership firms, according to ICAI President Ranjeet Kumar Agarwal’s statement in March. There are around 400 domestic companies with ten or more partners.

“Scale matters in the auditing profession. The Big 4 are important in terms of numbers and presence. There are benefits associated with size, including increased access to resources, global connections, technology, and experiences. One partner of an Indian CA company said, “This is a challenge for all the homegrown CA firms.”

According to experts, the existing laws make it difficult for domestic businesses to expand. For example, more than a hundred domestic audit companies have foreign connections, but they are not allowed to use them for branding or employment solicitation, since these activities are banned by the CA Act 1949. “The ICAI wants to maintain the businesses at the small or mid-level. Another significant disadvantage is that Indian companies have struggled with the documentation process as a result of inadequate technological expenditures, according to the Big 4 partner mentioned earlier.

According to Indian CPA companies, Big 4 firms have been actively campaigning to maintain their market share. For example, business from bigger organizations was transferred to smaller enterprises when the RBI enforced joint audit of banks and NBFCs beyond a specific level. A partner said, “There was pushback against this norm from some “strong elements” of the industry.” For the record, Deloitte, EY, KPMG, and PwC are the Big 4 companies.

According to experts, there is fierce rivalry among non-Big 4 enterprises, which prevents many local firms from growing in size. There are two categories of listed companies: those who only favor the Big 4 and those that don’t. There are more than one lakh businesses vying for audit business outside of the Big 4. In the non-Big 4 market, there is fierce rivalry, according to a partner at an Indian business.