Big 4 audit firms seem to have lost credibility with investors: IIAS survey

New Delhi, May 20 (IANS) The Big 4 audit firms appear to have lost credibility with investors, with 57 per cent of investors open to moving beyond these firms, according to a survey by corporate governance advisory firm, IIAS.

IIAS conducted a short survey of investors and sell side analysts, seeking their views on resolutions that are put to vote. The survey was conducted between April 13-21 and there were between 63 and 89 respondents.

It has noted that the audit world, especially the Big Four, are under fire from the regulators. The Securities and Exchange Board of India banned PwC in 2018 from auditing listed companies for two years. The Securities Appellate Tribunal has quashed the ban and the SEBI has challenged the decision.

In June 2019, the Reserve Bank of India barred S.R. Batliboi & Company, an affiliate of EY, from carrying out statutory audit assignments of commercial banks for one year.

The Serious Fraud Investigation Office (SFIO) has charged Deloitte Haskins & Sells and BSR and Associates (part of the KMPG network), for their failure in not disclosing the true financial health of IL&FS Financial Services and are looking at banning them from undertaking audits.

IIAS said there are divergences and with the frequent resignation of auditors, there are doubts on the quality of the audits that is being presented to investors.

The survey also found that while typically investors clamour for dividends, in this environment, they showed maturity with 78 per cent of investors preferring the companies’ retain cash and fortify their balance sheet.

A majority (57 per cent) of investors see promoters subscribing to warrants as a sign of confidence in the company and its operations.

The survey noted that dilution remains a concern for investors. 46 per cent of the investors were uncomfortable if dilution exceeded 5 per cent without a disclosure regarding how funds will be used. 30 per cent put this threshold at 10 per cent.

Surprisingly a majority support dual class shares – a class of shares that doesn’t find much support among investors in most other geographies.

While a super majority (87 per cent) were less supportive of promoter rights being embedded in AoAs (Articles of Association) – and periodically being voted upon, they had a more sanguine view about rights of PE Firms being embedded in a firm’s AoA.

Between qualified accounts and unqualified accounts, 73 per cent supported qualified accounts. Their rationale was that if you accept qualified accounts, at least you get to hear auditor concerns. If you ask for clean accounts, the risk is auditors will be muzzled.

–IANS

san/vd