Who will audit unlisted assets overseas? Indians are in a fix

equity stakes in unlisted overseas companies are often at a loss on how to go about auditing the foreign entities, thanks to their bankers taking differing views.

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When a local resident or a business entity holds 10% or more shares of a closely held offshore company, the resident investor must mandatorily file 'annual performance report' (APR) of the foreign entity by December 31. Investors submit the APRs to their authorised dealer banks who, in turn, give them to the Reserve Bank of India (RBI).

But who will audit these foreign outfits? Should it be done by Indian audit firms or foreign auditors? And, what regulation should they follow-Indian accounting standards or the accounting rules of the country where the overseas company is incorporated?

Some banks are comfortable with local auditors doing the job. But some differ on the grounds that it is not possible for an auditor sitting in India to do a proper job of auditing a firm based in another jurisdiction. One of the largest private sector banks have changed the rule-first laying down that reports of Indian auditors will not be acceptable, then subsequently insisting that the Indian auditor may finalise the APR provided it follows the host country norms.

Under overseas direct investments (ODIs), companies in India can transfer up to four times their net worth for investing in a subsidiary or