Only 18 per cent Indian companies are prepared to rotate by 1 April 2017 auditors who have completed 10 years or more as required under the Companies Act 2013, a survey by Grant Thornton and Prime Database says.
The survey says that only 18 per cent have either appointed auditors or have a comprehensive plan in place agreed with Board of Directors/Audit Committee to comply with mandatory audit firm rotation (MFR). Though India Inc does not seem to be ready for the rotation yet, 78 per cent of the respondents believe it's a "step in the right direction to enhance objectivity leading to improved financial reporting".
The survey was done from April to mid June 2016 and received 303 responses from various sectors including manufacturing, media and entertainment, technology, telecom, and aviation. As many as 61 per cent of the respondents are required to rotate their auditors from 2017/18 onwards.
When asked about their plans to comply with the MFR requirement and changing the auditor, 64 per cent of the respondents suggest that they plan to run full Request for Proposal (RFP) process and 21 per cent plan to swap internal auditors with existing auditors. As many as 58 per cent surveyed companies prefer the large firms with international presence while others were keen to have large Indian firms/others as auditors.
Fifty two per cent of the respondents believe there will be an increase in audit fees in the range of up to 25 per cent due to the new requirement.
According to the survey, out of 1,480 companies listed on the National Stock Exchange (NSE), only 131 companies have changed their auditors in 2015 and 2016.
According to a report by proxy advisory firm IiAS in April 2014, 60 per cent of the top 200 listed firms would have to change their auditors by 1 April 2017.
The mandatory audit firm rotation is applicable to all listed companies, unlisted public companies with paid-up share capital of Rs 10 crore or more, private limited companies with paid-up share capital of Rs 20 crore or more and companies with paid-up share capital of below threshold limit mentioned earlier but with public borrowings from financial institutions, banks or public deposits of Rs 50 crore or more.