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English Law requires an Auditor to be a guard dog not a bloodhound, and that’s why Carillion collapsed in a Multi-Billion Pound insolvency with KPMG’s partners left wondering how to spend their bonuses while they wait to give evidence the House of Commons Finance Committee. But as with so much else over recent years, India’s Government is marching resolutely out of step with the former mother country: intent on improving matters by introducing stronger regulatory controls on the subcontinent’s auditors and in the words of Finance Minister P.P. Chaudhary, strengthening the “fabric of corporate governance”. It seems India won’t have its Carillion moment.

The new National Financial Reporting Authority was set up in March with a brief to provide independent oversight of the audit profession and to “…investigate chartered accountants and their firms” (a wide brief on any basis) while doggedly digging into the conduct of even the largest listed and unlisted companies. In advance of the new Agency formally coming on stream, the Ministry of Finance served thousands of notices to companies thought to be falling short on minimum compliance thresholds, going so far as to deregister those who weren’t cooperating. In its sheer audacity the new initiative brings to mind the innovation and overarching ambition of Demonetisation.

There has in consequence been a marked uptick in auditor resignations: thirty so far in 2018, which is double the number for both full years 2016 and 2017 and clear evidence that the new initiative has teeth.
And as if that wasn’t enough, The Securities and Exchange Board of India (SEBI) is also getting in on the act: recently barring Price Waterhouse, Bengaluru from certifying company accounts for three years. Interestingly, it also mandated payment of penalties for wrongful gains (audit fees in other words). KPMG’s Carillion Partners might wish to count their blessings they weren’t working in Mumbai.

The emergence of this tougher regulatory climate is the best possible news for the Indian Economy, which has historically been dogged with horror stories of lax or minimal oversight. Businesses investing into the subcontinent simply cannot afford that level of uncertainty, and this at heart is the fundamental fact behind the reform programme. India’s rapidly growing economy needs a resilient regulatory structure and the innovations now on foot not only go to meeting that objective, they are likely to be the envy of many developed economies too.

Perhaps the new climate is best summed up by the Chairman of EY: “There is heightened risk awareness now with much more effective external regulators. The new focus on governance has driven up the risk perception in the eyes of auditors and made them much more compliant in their approach.”

Exactly so…we don’t need another Carillion in Kolkata.