There is awareness amongst Indian companies about the new mandatory firm rotation (MFR) requirements, a majority of companies are yet to start planning to comply with the requirements, says a report.
As per a survey by Grant Thornton India in association with Prime Database, 82 percent of companies in India are yet to start planning or only have an informal plan agreed with the Board of Directors to meet the requirement of MFR, and only 18 percent have either appointed auditors or have a comprehensive plan in place.
"The survey results clearly show the need for a majority of India Inc to start planning their approach towards Audit Firm rotation early, and not to underestimate the complexity and importance of this generational shift in regulations," Vishesh C Chandiok, National Managing Partner, Grant Thornton India LLP said.
In order to reduce the risks of excessive familiarity and bring in much-needed transparency into the auditing process, the Companies Act 2013 provides for MFR for all the listed and certain classes of unlisted companies, such that audit firms completing a term of 10 years or more need to be rotated beginning April 1, 2017.
Despite the fact that corporate India is not completely ready for the transition, the survey noted that a whopping 78 percent believe that MFR is a step in the right direction and would lead to improved financial reporting.
It further noted, about 73 percent of the companies have either already taken steps to comply with the independence requirements of the 2013 Act or are in the process of such compliance.
"MFR is a step in the right direction and will surely result in greater transparency, higher accountability and better corporate governance," said Pranav Haldea, Managing Director, Prime Database Group.
According to Prime Database, out of 1,480 companies listed on the National Stock Exchange, only 131 companies have changed their auditors in the years 2015 and 2016.
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