Govt may ban non-audit services to audit clients

Firms auditing the accounts of public-interest entities such as listed or large unlisted companies could be debarred from providing non-audit services to them. Government sources said they were considering this move, which would improve corporate governance and address conflicts of interest that arose when the same firm provided audit and non-audit services to a company.

This will, however, require a change in the Companies Act. The corporate affairs ministry could push for this change in the next round of amendments to company law, according to a senior official.

“While providing audit services, the same firm should not also be involved in management consultancy or fundraising activities,” the official added.

The Companies Act gives a list of non-audit services, which include accounting, book-keeping, internal audit, and actuarial and management services.

“These services are vague. One interprets them suiting one’s own purpose. For instance, what are management services? They are not defined and audit firms can use the term to mean what works out best for them,” a senior company lawyer said.