ICAI can take action against affiliates of Big Four accounting firms: Delhi High Court
Domestic affiliates of the Big Four accounting firms like EY, KPMG, PwC, and Deloitte work as a single unit with them, violating the Chartered Accountants Act.
The Delhi High Court has allowed the Institute of the Chartered Accountants of India (ICAI) to take action against affiliates of the Big Four accounting firms, lifting the stay against the ICAI orders and making the firms and their partners liable to reply to the ICAI’s notices.
Why did the ICAI issue notices to the Big Four accounting firms and affiliates?
The ICAI’s disciplinary committee had earlier issued notices to the affiliates of big four global accounting firms EY, KPMG, PwC, and Deloitte.
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For EY, the ICAI cited issues related to associations, resource sharing, control, and referral fees that violate the Chartered Accountants Act 1949, ordering the global giant to remove partners (Who are now retired) for three years from affiliate firms SV Ghatalia & Associates, SR Batliboi & Associates LLP, SRBC & Co. LLP, and SR Batliboi & Co. LLP. The ICAI also fined them ₹5 lakh each, the Economic Times wrote, adding that the ICAI also asked for a compliance report within 90 days.
Partners at KPMG affiliate BSR & Co. are also under scrutiny and they obtained a stay order from the Telangana and Punjab & Haryana High Court against the ICAI's action.
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Partners at PwC affiliate firms also got a stay order from the same courts.
Deloitte partners had also obtained a stay order from the Delhi High Court.
What is the dispute between the ICAI and the Big Four accounting firms?
The dispute is regarding the global affiliation of Indian audit firms, for which the domestic firms must pay 2.5% of their revenue to the international company to gain access to common resources, methodology, knowledge and expertise, Financial Express wrote, adding that the domestic entities work as a single unit along with the global entity, violating the Chartered Accountants Act.
What are the guidelines the ICAI will announce to solve this issue?
The ICAI in 2022, issued guidelines for domestic firms, but hasn’t done so for international forms yet, according to the Economic Times article.
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The Delhi High Court therefore asked the ICAI to create a framework for such multinational accounting firms to operate. “Such firms contribute in bringing global best practices to India with immense opportunities for youngsters. They also render services to Indian businesses even at a global scale. Thus, the provisions relating to licensing agreements, brand usage etc., also need to be looked into,” the order read.