The audit landscape in India is dominated by the top five professional services firms: EY, Deloitte, KPMG, PwC, and Walker Chandiok & Co. These firms oversee a significant number of audit assignments for Nifty-500 companies, accounting for 310 out of 498 assignments as of March 31, 2023. When considering market capitalization, the companies audited by the Big Four firms represent 57% of the total market capitalization of all NSE-listed companies in 2022-23.
Major listed companies prefer to engage the services of these top auditors due to their strong reputation. Similarly, the top auditors prefer to work with larger listed companies, especially considering recent governance issues and regulatory actions taken against auditors. EY affiliates audited the highest number of listed companies with 146, followed by KPMG affiliates (136), Deloitte affiliates (124), Walker Chandiok & Co (85), and PwC affiliates (65). In terms of market capitalization, Deloitte had the largest share at 19%, closely followed by KPMG at 17% and EY at 15%.
Auditing has become more complex over time, requiring multifunctional resources, sector expertise, technological capabilities, and global reach. However, the numbers in India are still far from mature markets. For example, the Big Four firms audit 98 of the FTSE 100 companies, and over 98% of the Fortune 500 are audited by the top four firms. Currently, multinational audit firms are not allowed to operate directly in India, and they operate through Indian affiliates.
During the mandatory audit rotation in 2017, it was observed that companies audited by a Big Four firm generally preferred engaging with another Big Four firm or one of the two firms, Walker Chandiok & Co or MSKA and Associates.
In 2022-23, the Indian Big 5 audit firms played a significant role in overseeing the audit process for 551 out of 1,869 companies listed on the NSE main board, accounting for approximately 29.48% of the total assignments. This represented a slight decline from the previous year. The study utilized updated data until June 2, 2023, and auditor details were not available for two companies in the Nifty-500 list. The top 10 audit firms accounted for the audit of 707 companies, or 38% of the total.
The 2021 RBI guidelines on the appointment of statutory auditors in commercial banks, NBFCs, and housing finance companies have posed challenges for the top audit firms, leading to some clients being left and growth being capped.
In 2022-23, the number of companies employing joint auditors decreased to 144, accounting for approximately 8% of the total 1,869 companies. Among these, 105 companies were from the private sector, while 39 were PSUs or PSBs.
Highlighting the scale issue in the Indian audit ecosystem, the study revealed that only 19 audit firms audited 10 or more listed companies.
The author is a Chartered Accountant with 2 decades of experience into Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, Due diligence. Currently, the author is the founder and managing partner at RRL Global services.
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