India’s top firms still rely on Big 4 auditors

Even though there are over 2,300 statutory auditors in India, most large companies turn to the network firms of Deloitte, KPMG, PwC and EY.

Data from audit regulator National Financial Reporting Authority (NFRA) also showed that at the same time, about 70% of all statutory auditors work with just one client, indicating that smaller auditors are considered to be at the upper end of the audit market. But it is difficult to get a foothold. .

Lack of competition in the audit market is a major concern for regulators around the world, but executives at large audit firms said larger firms prefer them for legitimate reasons. “If all large businesses choose from three or four audit firms, how can auditor rotation be meaningful? Like every industry, competition is important in the audit world too,” said a person aware of the NFRA’s estimate of the audit industry.

Under the Companies Act, large companies and large borrowers have to mandatorily turn to individual auditors after five years and audit firms after 10 years. These include listed companies, public companies with paid-up capital. ₹Private Limited Firms with a paid-up capital of Rs.10 crore and above ₹20 crore and above, and with all companies ₹50 crore and above from public institutions, irrespective of their paid-up capital. The cooling-off period between two assignments is five years. Audit rotation seeks to enhance the integrity of auditing and reporting quality in addition to opening up opportunities.

Consolidation and the failure of a single firm have reduced the number of large auditors from the big eight in the 1980s to the big four now; And any further consolidation may reduce competition which is not a good idea, as the person cited above said. Emails sent to NFRA, EY, KPMG, Deloitte and PwC remained unanswered as of press time.

NFRA data shows that network firms of the Big Four audited 522 companies in FY19, representing 75% of the market capitalization of 5,023 listed firms for which data is readily available. It represents about 10% of the listed firms by number. On the other hand, 1,578 auditors audit only one company, accounting for a small fraction of listed companies.

What is to be expected, however, is that the level of audit concentration in India is less worrying than in some other Western economies. Reuters The big four, citing audit watchdog Financial Reporting Council (FRC), reported from London in July that all FTSE 100 companies were audited in a roughly four-sided split.

A senior executive at one in four large firms said there are different segments in the market, and that some large firms do not see value in delegating statutory audits to smaller firms, which do not differ from the trend seen in other markets. .