ICAI’s new global networking rules unsettle Big 4, tighten compliance for audit affiliates
Mumbai, Feb 25, 2026
Synopsis
India's new global networking rules for audit firms, aimed at boosting local players, have introduced stringent compliance and disclosure requirements. While allowing firms to join global networks, the norms mandate registration, appointment of a nodal officer, and arm's length dealings, causing disquiet among Big 4 and consultancy houses.
A sense of faint disquiet pervades the Big 4 firms and some of the large consultancy and accounting houses in the wake of India's new global networking rules.
The norms-though a step towards a liberal order intended to arm local auditors to join the big league, access knowhow and markets, and shore up profits-come with dos and don'ts, threadbare disclosures, and burdensome compliance. To grow the market, the Big 4 and foreign consultancy majors, who cannot practice auditing under the law, have over the years struck alliances with local firms acting as audit affiliates.
The new networking framework, released by the Institute of Chartered Accountants of India (ICAI), a statutory body, would now allow an audit entity to describe themselves as part of a global network in their letterheads, websites, and business cards-a positive development that could have a rub-off on their brands and business. For instance, audit firm SR Batliboi & Co, which is associated with EY, could call itself a part of the EY global network; or BSR & Co, the audit firm, could do the same with the KPMG brand. However, there are strict conditions.
THE CONDITIONS
First, the network arrangement between a domestic entity and a global network must be registered with ICAI. The agreement between them-a private document containing commercial terms-must be shared with ICAI, along with details of receipts and payments. While ICAI has assured that all information would be considered confidential, there's some discomfort as ICAI is run by practicing CAs.
The audit firm has to appoint a 'nodal officer', who is saddled with onerous responsibilities and exposed to compliance pitfalls. Thirdly, all dealings between an audit firm and its global organisation must be carried out on an 'arm's length' basis, which may be impractical in certain cases and may require changing the agreements' nature and terms. Neither ICAI president Prasanna Kumar D nor the spokespersons of the Big 4 firms (PwC, EY, KMPG and Deloitte) responded to ET's queries.
The guidelines, though softened, compared to the earlier draft, still state that the nodal officer shall be responsible for compliance of policies, procedures, and maintenance of records; and, if the nodal officer fails to declare another partner answerable for the alleged violations, the former would be answerable for such violation and face disciplinary proceedings.
"These are early days. It's a move towards opening up the sector. Certain conditions may appear demanding, but this is inevitable when you take the first such step for formalising network arrangements," said Amarjit Chopra, who was the ICAI president in 2010-11. Chopra feels some of the conditions could be relaxed after a few years once there is confidence.
According to a key condition, sharing of fees, profits or partnership deals is not permitted between a firm registered with ICAI (i.e, an audit firm) and any constituent not registered with ICAI. "Firms in global networks may share costs or revenue with other constituents, the details of which should be furnished to ICAI by the network when called for. The cost/revenue sharing details should be specific and itemised," it said.
A CASE OF OVERREACH?
"The thinking needs to shift from regulation to enablement which the current guidelines miss substantially-from oversight over current firms to enabling creation of many 'Big' firms," said Vishesh Chandiok, CEO of Grant Thornton Bharat. "That was the ask of the hon'ble PM: 4 'Indian Big 4' in an expanded 'Big 8'. That was 2017," said Chandiok.
After registration of the global network, the nodal officer will have to intimate the relevant requirements of the Act, Regulations, Code of Ethics and various guidelines to all constituents of the registered network. "The institute should clarify who all should be considered as 'constituents'."
Under section 144 of the Companies Act, 2013, if a domestic firm in a global network is the statutory auditor of an Indian entity, then the other domestic entity (or entities) of the network shall not, directly or indirectly, accept professional assignments which are prohibited for the statutory auditor. "This is a norm that is largely followed. If the focus is on the independence of the audit firm, the present code of ethics could have been expanded. Too many rules could put off some of the global firms. At present, it appears a bit of an overreach," said another official of a top firm.
[The Economic Times]
