The Indian government is actively considering amendments to the Companies Act and tender rules to bolster the competitiveness of domestic audit firms against the dominance of the "Big Four" – Deloitte, PwC, EY, and KPMG. These proposed changes aim to create a more level playing field, enabling Indian firms to handle larger clients, participate in significant government audits, and ultimately establish themselves as global leaders in the audit and advisory space.

Key Proposed Amendments and Changes:

• Relaxing Partner Composition Norms: The Ministry of Corporate Affairs (MCA) is exploring changes to Section 141(1) of the Companies Act, which currently mandates that a majority of partners practicing in India must be chartered accountants for a firm to be appointed as an auditor. This amendment aims to facilitate the formation of multi-disciplinary partnerships (MDPs).
• Enabling Multi-Disciplinary Partnerships (MDPs): The government is considering amendments to the Companies Act, 2013, and the Public Procurement (Preference to Make in India) Order 2017, to allow the creation of MDPs. This would allow professionals such as chartered accountants, company secretaries, lawyers, and actuaries to work together under a single firm structure, fostering integrated service offerings.
• Reforming Tender Norms: Changes in tender norms for government audits are under consideration to increase the participation of domestic firms in large-value audits, which are currently dominated by international players. Proposals include making Indian firms mandatory participants in government tenders and modifying eligibility criteria to broaden the range of potential bidders.
• Easing Advertising Restrictions: The government is contemplating relaxing restrictions on advertising and brand-building for professional service providers like chartered accountants, lawyers, and company secretaries. This move aims to address the disadvantage faced by Indian firms, as the current regulations limit their ability to compete with top global advisory firms.
• Regulatory Alignment and Capacity Building: The Institute of Chartered Accountants of India (ICAI) is playing a crucial role in aligning regulatory frameworks with global practices. The institute is also finalizing a digital platform to facilitate mergers and tie-ups among CA firms. Furthermore, the government is urging ICAI and the Institute of Company Secretaries of India (ICSI) to upgrade training in areas like AI and robotic process automation.

Rationale Behind the Move:

The government's initiative is driven by the desire to reduce dependence on foreign players in sensitive advisory roles and to elevate Indian firms to a position of global competitiveness. Currently, Indian audit firms face several challenges, including restrictive regulations, intense competition, and a lack of scale. Of the 95,000 domestic chartered accountancy firms, only about 400 have more than 10 partners, hindering their ability to audit large corporations or provide comprehensive consultancy services. International networks reportedly audit roughly 67% of Nifty 500 companies.

Expected Impact:

The proposed amendments and changes are expected to create a more level playing field for domestic audit firms, enabling them to grow in size and competence. By allowing MDPs and easing advertising restrictions, Indian firms can offer integrated services and build stronger brands. Moreover, changes in tender norms will provide domestic firms with more opportunities to participate in government contracts, enhancing their credentials and skills.

Challenges and Considerations:

Despite the potential benefits, some industry experts express skepticism about the feasibility of creating a "Big Four" rival solely based on audit services. Concerns have been raised regarding whether regulatory tweaks alone are sufficient and if they must be matched by investments in technology, data analytics, and audit-quality systems. It is also essential for domestic firms to adapt to new opportunities, invest in technology, and leverage international partnerships to succeed.

The proposed amendments to the Companies Act could be introduced during the winter session of Parliament. The MCA has already initiated stakeholder consultations on the framework for multi-disciplinary consultancy firms.