Audit quality is a bigger concern than market concentration

livemint.com:

The National Financial Reporting Authority (NFRA) has proposed a revision of accounting rule SA600 so that a parent company’s auditor would be held responsible for the work of the auditor of a subsidiary. The idea has met with resistance. The Institute of Chartered Accountants of India (ICAI) has flagged its concern that it could weaken smaller chartered accountancy firms and lead to greater market dominance by a few big ones.

While the intent of the NFRA is to tighten regulation and ensure accountability so that governance lapses are minimized, some practical challenges do stand in the way. Vesting all responsibility with the lead auditor of a business that uses many auditors would give the lead one an incentive to ask its management for the entire roster of work, including that of subsidiaries, so that it can examine all the books to its own satisfaction. Without its own staff carrying out all audits, the lead auditor might be unwilling to bear responsibility for the accounts of these units.

This could result in big firms landing the assignments that smaller auditors often get and the latter getting edged out of this space would increase the heft of the so-called Big Four: Deloitte, PwC, EY and KPMG. Arrangements of trust between big and small audit firms are hard to conceive. Even if some sort of arrangement could be reached for shared work, with audits of subsidiaries to be done under the oversight of the lead auditing team, the scope for professional clashes will probably make it impractical.