More Indian firms outsourcing audit jobs for transparency

Mumbai: India firms are increasingly outsourcing its internal audit work to external firms as a spate of recent corporate scandals involving governance issues and fraud have prompted them to take visible steps to set up an independent and objective audit system, reports Economic Times.

The trend of outsourcing internal audit work to external firms is being followed by large firms, like Airtel, Dabur, Nicholas Piramal, the National Stock Exchange, Hindalco, Vodafone, Pfizer and MphasiS. "The independence and objectivity that an external agency has is difficult for an audit team consisting of existing employees," said Porus Doctor, a Partner with Deloitte. "Also an external audit firm would bring in best practices that probably wouldn't be there in an internal audit team drawn from the company's employees."

After the Satyam scam, several firms tightened internal audit norms and made the function an integral part of daily boardroom activity. Many firms have even converted internal audit into a continuous activity, instead of the current practice of doing it for the quarterly or half-yearly financial statements. According to officials at the four large audit firms - Deloitte, Price Waterhouse, KPMG and Ernst & Young - and from other mid-sized accounting firms, there has been a sharp rise in request-for-quotations from firms keen to adopt continuous internal audit or concurrent audit. Although it is not mandated under law, most state-owned banks have already starting the concurrent audit process.

Under concurrent audit, a team of auditors is present at a company's offices and evaluates all major expenses and key operations and works simultaneously with the company's executives. "Companies try to do risk-based segregation of their operations, so that in areas of high risk, there is greater audit on a continuous basis," said KH Viswanathan at Astute RSM.

"In such mandates, our boys are permanently with the companies. It could be in key areas such as inventory that is very important for a gems and jewellery company or a collection point for a toll company or a point-of-sale in a retail firm," he added.