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November 1, 2009

Audit firm registration under review

India’s audit regulator plans to limit the number of audit firms a network can be affiliated with in a post-Satyam shake-up that could have wide implications for the Big Four. This follows questions over the extent of PricewaterhouseCoopers (PwC) affiliates’ involvement in the Satyam accounting fraud.

Global networks such as PwC are affiliated with multiple audit firms registered in the country to overcome Indian laws that restrict the number of partners a firm may have to 20. There are nine offices in India affiliated with PwC. These operate in partnership but are mostly structured as separate legal entities. Many carry variations of the name Price Waterhouse.

The Institute of Chartered Accountants of India’s (ICAI) proposal is to allow only two registered audit firms from the “same entity”. This would affect all the Big Four networks.

The proposal is designed to prevent global networks from washing their hands of erroneous work carried out by affiliated firms.

Opponents of the ICAI proposal argue that firms will set up new partnerships under different names and the rules could restrict the ability of large audit firms to serve their clients, having a detrimental effect on capital markets.

The Indian government recently said it could take action within a couple of months against the firms Price Waterhouse Bangalore, Price Waterhouse New Delhi and Price Waterhouse Kolkata, four Price Waterhouse Bangalore auditors and two former Satyam Computer Services employees implicated in the Satyam accounting scandal.

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