PwC and Deloitte to hold back non-audit services from audit clients

Big Four accounting and advisory firm’s PwC and Deloitte have both announced that they will no longer offer non-audit services to their existing audit clients. The move comes after a period of increased scrutiny on the firms and just days after the Ministry of Corporate Affairs (MCA) moved to address the conflict of interest.

The non-audit services of the the Big Four span a wide variety of offerings, ranging from management consulting and transaction services to finance transformation and tax advisory services.

There are clear regulations forbidding traditional consulting work to audit clients, however, the Big Four have to date been providing selective non-audit services to existing audit clients. This typically includes advisory work in the finance, controlling, internal audit domain, topics which to some extent relate to the audit and finance backbone.

However, in recent years, especially in Western countries such as the US and the UK, criticism on the combination of audit and advisory work has been growing. The MCA has followed suit, launching a research on the matter in India, in which it concludes that there is a need to tackle the growing conflict of interest in India’s audit sector.

The paper is a culmination of a period of increased scrutiny being faced by the country's audit industry, after members of the Big Four were implicated in instances of malpractice last year. The scrutiny sparked a response from some in the audit sector, with professional services firm Grant Thornton announcing in June itself that it would curb consultancy services for audit clients in India.

Now, both PwC and Deloitte have announced similar changes in their operations, with the former making the announcement on Thursday and the latter on Sunday. In their respective statements, both accounting and consulting giants stated that they believe the move will improve the confidence in and reputation of audit firms in India.

PwC Partner Subramanian Vivek said, “Given the important role that auditing plays in the Indian economy, everyone that relies on audit needs to have the same high level of confidence in auditor’s independence, objectivity and effectiveness.”

Meanwhile, a Deloitte spokesperson said: “We believe this will increase the public’s confidence in auditor independence and quality and will remove ambiguity in a public and business environment that demands greater clarity about our services."

The move also addresses the MCA’s concerns that a disproportional share of the audit and advisory market is controlled by the Big Four, and that “home grown” firms need to be given an opportunity to thrive.

Last year, the CEO of Grant Thornton Vishesh Chandiok indicated that growing scrutiny on the Big Four has already paved the way for the next rung of firms to capitalise on the trust deficit.