ICAI Action Against EY Indian Affiliates Raises Concerns For Global Accounting Players

Attributing professional misconduct to select Indian affiliates of Ernst & Young Global, the Institute of Chartered Accountants of India has reprimanded four such firms by ordering an immediate cessation of all existing arrangements with the multinational entity.

The affiliates that have come under the ICAI’s scanner are SR Batliboi & Associates LLP., SRBC & Co. LLP., SR Batliboi & Co., and SV Ghatalia & Associates LLP.

These firms and two associated partners secured professional work through means that are prohibited under the Chartered Accountants Act by joining the international entity, agreeing to referral work provided by it, and compensating the global entity for the said referral, the ICAI’s order states.

Additionally, the ICAI said that the visiting cards and emails used by these affiliates contained information that depicts a close linkage with the international entity. The order states that the affiliates were unable to show that they were operating independently as the domain that was being used belonged to the multinational entity.

Lastly, it said that there was apparent sharing of human resources, infrastructure, brand name and contact details, which signifies that E&Y was controlling these affiliates.

Consequently, the ICAI has deregistered the partners from the ICAI's membership for three years, while simultaneously imposing a fine of Rs 5 lakh on both of them.

Generally, all Big Four companies operate through similar structures. Therefore, if the ICAI has found the practices violative of professional misconduct, then it is likely that other Big Fours may find themselves in violation as well, to the extent that their operating structures are similar in nature, Amit Singhania, founder of Areete Law Offices, told NDTV Profit.

Sharing of infrastructure, human resources and usage of email domains is fairly common among all global accounting organisations, and we can expect that all such arrangements will come under ICAI’s scanner and any firm falling foul of the law could be barred from practicing, said Ankit Jain, partner at Ved Jain & Associates.

However, Singhania said that it will be interesting to see how the high court deals with this issue once it carries out a detailed examination of the nature of the transactions involved in order to conclude whether the conduct of the Indian affiliates was violative or not.

"We, as Indian audit firms, have always respected rules and applicable laws. We are reviewing the order and will take action as necessary, including all the remedies available under law," SRBC & Co. said in a statement to NDTV Profit.

It is noteworthy to mention that the question of whether Indian affiliates of global accounting firms such as PwC, Deloitte, EY, and KPMG are in accordance with the Chartered Accountants Act and the Code of Professional Conduct under the Act came up for consideration before the top court in 2018.

At the time, the apex court had directed the central government to constitute a three-member committee to analyse the activities of multinational accounting firms, or MAFs. The committee tabled its report on Oct. 25, 2018.

Terming MAF a "misnomer",  the committee said that merely being part of a network and sharing global costs does not mean that these firms are owned or controlled by the global parent.

Laws must be rationalised to promote multi-disciplinary practices to allow firms to offer a bouquet of high-quality professional services at par with international standards, the committee said.

It was also recommended that branding with international firms be allowed to not only enhance the services offered but also facilitate the audit firm's expansion in size and operation, enabling them to compete internationally.