The Delhi High Court has confirmed that the Institute of Chartered Accountants of India has full authority to take action against the affiliates of the Big Four firms. On July 3, the court lifted a previous stay on ICAI’s orders.
The court also stated that both the firms and their partners must respond to ICAI notices. This decision follows the ICAI’s disciplinary committee issuing several orders against domestic affiliates of the Big Four firms and their former partners under the Chartered Accountants (CA) Rules 2007 and the CA Act. These orders included monetary penalties and disciplinary actions.
Initially, the Delhi High Court had put a stay on these orders. Later, nine partners from these firms filed petitions claiming there was no violation of the CA Act and that they should not be held accountable for the orders.
ICAI to Act Against Big Four Accounting Firms
The Delhi High Court has permitted the Institute of Chartered Accountants of India to proceed with actions against affiliates of the Big Four accounting firms. This decision lifts the previous suspension of ICAI orders, requiring the firms and their partners to respond to ICAI notices.
Why ICAI’s Notices to Big Four Accounting Firms?
The ICAI’s disciplinary committee previously sent notices to affiliates of the big four global accounting firms: EY, KPMG, PwC, and Deloitte.
For EY, the Institute of Chartered Accountants of India identified issues related to associations, resource sharing, control, and referral fees, which violate the Chartered Accountants Act 1949.
They ordered the global giant to remove retired partners from affiliate firms SV Ghatalia & Associates, SR Batliboi & Associates LLP, SRBC & Co. LLP, and SR Batliboi & Co. LLP for three years. Additionally, the ICAI fined each firm ₹5 lakh and requested a compliance report within 90 days, as reported by the Economic Times.
Partners at KPMG affiliate BSR & Co. are also under scrutiny and obtained a stay order from the Telangana and Punjab & Haryana High Courts against the ICAI’s action.
Similarly, partners at PwC affiliate firms received a stay order from the same courts.
Deloitte partners secured a stay order from the Delhi High Court.
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Indian Audit Firms Navigate Global Affiliation Dispute
Indian audit firms are in a dispute over their global affiliations. To access shared resources, methods, knowledge, and expertise, these firms must pay 2.5% of their revenue to the international company. Financial Express reported that these domestic firms operate as a single unit with the global entity, which violates the Chartered Accountants Act.
ICAI to Frame Guidelines for International Accounting Firms
The Institute of Chartered Accountants of India issued guidelines for domestic firms in 2022 but has not yet done so for international firms, as reported by the Economic Times.
In response, the Delhi High Court has directed the ICAI to develop a framework for multinational accounting firms to operate in India. The court emphasized the importance of these firms in introducing global best practices and providing significant career opportunities for young professionals.
It also highlighted their role in serving Indian businesses on a global level. The court’s order stressed the need to address licensing agreements, brand usage, and related provisions in this context.
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ICAI to Act Against Big Four Accounting Firms FAQs
Q.1. What did the Delhi High Court decide regarding ICAI and Big Four affiliates?
Ans. The Delhi High Court lifted a stay on actions against Big Four affiliates, allowing them to proceed with disciplinary measures.
Q.2. What prompted ICAI’s actions against these firms?
Ans. Institute of Chartered Accountants of India issued notices citing violations of Chartered Accountants Act by Big Four affiliates in India.
Q.3. What penalties did ICAI impose on these firms?
Ans. Institute of Chartered Accountants of India ordered fines and disciplinary actions against Big Four affiliates for violations, including monetary penalties and partnership restrictions.
Q.4. Did partners from these firms contest ICAI’s orders?
Ans. Yes, nine partners filed petitions claiming no violation of CA Act and challenging their accountability.
Q.5. What is the significance of the court’s decision on global accounting firms in India?
Ans. The court’s decision impacts how global firms operate in India, highlighting compliance and regulatory challenges under Indian law.
