Analysis: As more U.S. audit work moves to India, concerns arise

Tue Oct 16, 2012 4:38pm EDT
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By Dena Aubin and Sumeet Chatterjee

NEW YORK/MUMBAI (Reuters) - Auditing of U.S. corporations' financial books, a vital underpinning of investor confidence, increasingly relies on work carried out in India, where there is no clear system of oversight.

U.S. audit regulators do not conduct regular physical inspections of offshore centers in India where U.S. audit work is performed, Indian accounting officials and employees of large audit firms told Reuters.

The U.S. arms of the Big Four audit firms - Deloitte Touche Tohmatsu Ltd, KPMG, PricewaterhouseCoopers and Ernst & Young Global Ltd - said that work handled by Indian employees is routine and systematically sent back for review to the United States.

But some audit firms are layering on more complex tasks in the offshore centers and Indian workers are rising to senior positions in the auditing ranks, said Big Four firm employees and others in the accounting industry in India.

Given the failures of U.S. auditors so alarmingly displayed in recent accounting problems - for instance, February's $2 million penalty against Ernst & Young over its past Medicis Pharmaceutical Corp audits - some experts said having more Indian auditors on the job may result in better audits.

Yet concern is growing that no coherent regulatory system exists to closely police the work in India, to gauge its quality, and to take action if problems should develop.

Perhaps as much as 5 percent of U.S. audit work is presently done in India, said M.G. Fennema, an accounting professor at Florida State University who has researched offshoring.

That is up from an estimated 1 to 2 percent about five years ago when the firms launched offshoring pilot projects.   Continued...

Workers are pictured beneath clocks displaying time zones in various parts of the world at an outsourcing centre in Bangalore February 29, 2012. REUTERS/Vivek Prakash