Joint Audit may increase risks; no evidence that it improves audit quality says BSR Head

Sudhir Soni, Head of Audit at BSR and Co, which is a sub-licensee of KPMG, for the first time shared his views on joint audit, in an exclusive interview with ETCFO.

The audit veteran, who possesses over three decades of experience in the audit and assurance industry, stated joint audit is no solution to improving audit quality and that risks associated with that approach are higher as compared to a single audit with “responsibility getting divided”.

A government panel has recommended mandatory joint audits for public companies interest companies to enhance audit quality and tackle the competition issue (the Big Four accounting firms — KPMG, EY, Deloitte and PwC — occupy over 70% of the share by market capitalisation). In India, joint audit is mandatory only for financial entities with assets above Rs 15,000 crore, and for public sector banks and insurance companies. Joint audits mean two auditors carry out the statutory audit and prepare a joint audit report as compared to one single auditor. Edited excerpts.

Q: What are your views on mandatory joint audit rules for public interest companies?

Sudhir Soni:

There is no evidence joint audit improves audit quality. The risks in a joint audit are higher. It requires an increased need for coordination between two auditors, and also, a company may find it difficult to resolve issues when auditors have different views.Sudhir Soni, Head of Audit, BSR and Co (a sub licensee of KMPG)

Further, the joint audit also drives the cost of audits higher for companies. There is also the risk of something slipping through the cracks as in a joint audit responsibility gets divided and allocation of work may get missed.

Today, France is the major economy where joint audit is mandatory for public interest entities but there the sharing of audit work papers by auditors is allowed. In India today it is not as if the companies cannot appoint joint auditors; they still can do it and we feel it should continue to be left to the discretion of the audit committees.

Q: What about joint audits as a way to tackling competition issue?

Sudhir Soni: Joint audit could be a solution to increase the choice of firms. The questions that arise are whether the firms which are engaged in joint audits have similar capabilities. We feel the mandatory auditor rotation rule already addresses the issue of increasing competition as it caps the maximum duration of the audit engagement of an audit firm. A combination of mandatory firm rotation and joint audit will make a very complex operating scenario.

Q: Do you fear losing market share if mandatory joint audits come into play for public interest companies?

Sudhir Soni: We don’t fear losing that. Mandatory joint audit may in fact increase the opportunity as where today companies require one auditor, they would require two auditors. We are committed to provide high quality audits to the stakeholders. In order that joint audits are more effective changes may be needed to audit standards such as requiring sharing of audit work papers amongst the joint auditors.

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