May 2016

Request for proposal (RFP): Mandatory Firm Rotation (MFR)

Introduction

Mandatory Firm Rotation is now a global topic for discussion. In India, the Companies Act, 2013 (the 2013 Act) has mandated firm rotation effective 01 April 2014, for a prescribed class of companies with transition period of 3 years. An audit firm can be appointed for a maximum period of two terms of five consecutive years with a cooling off period of five years during which, neither the audit firm nor any of its network firms can be appointed as auditors.

Hence, to summarise briefly, beginning 01 April 2017, all prescribed class of companies will have to rotate their existing auditors, if the latter has been in appointment for a period of 10 years or more. Companies have about a year to implement their transition plans. A smooth transition can be brought about only if the company has geared itself for a change in auditor well in time. Though auditor transition could severely impact an organisation’s resources, the challenges it poses are not invincible. A proper mechanism needs to be put in place for all the procedural requirements of transition.

To address this requirement, a number of specific parameters should be set, both for the eligible entities and the participating audit firms. It is well established that clearer the information given to the participating audit firm, the better the companies are in a position to compare their propositions. The first step in selection process involves forming a committee of decision makers to identify and evaluate the audit firm. The selection committee, based on its experience, may shortlist audit firms and invite them to submit proposals.

At Grant Thornton, we present a set of questions that have a bearing on this important decision in the form of a standard template, which could be used by companies as a ‘request for proposal’. These questions have been framed keeping in mind the results of our recent MFR survey and we suggest companies tailor these to suit their unique requirements.

We hope you find this useful. Should you require any assistance with customising this document or at any stage of this critical process, please feel free to contact us at npsg@in.gt.com.

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Invitation to tender (ITT) – Statutory audit services

IntroductionThis ITT has been issued to enable Company ABC to evaluate the options available in the marketplace for the provision of statutory audit services under Companies Act, 2013, for a period of the next five years and beyond. Company ABC is actively looking at creating a valuable partnership with a solutions oriented service provider and best in class player in the marketplace.

The purpose of this document is to provide participating firms with a set of questions which are important to us as a company, in making this selection and to enable them to send over a service and fee proposal (please mention any out of expenses separately).

Sample letter for proposalTo,

M/S PQR & Co LLP,

Delhi, India

We request you to confirm receipt of this proposal and confirm of your intent to participate within five working days. Firms may be asked to sign a confidentiality agreement. We would request your responses to reach us at – firstname.lastname@abc.com . In this email, please provide contact details along with the email ID and telephone number of the person you wish we should contact in connection with this tender.

Our company vision, values and mission statement as well as relevant financial information can be found at our website www.companyabc.com. If you need any further information about our company, please contact me at the details below. All questions must be submitted on email.

We would like to receive your proposals no later than XXX 2016. Any key assumptions should be separately stated. No sub-contracting will be allowed. Shortlisted firms will be contacted to deliver a presentation in early XXX 2016. During this meeting, we will describe the criteria used to evaluate firms – which principally comprise of excellence of service, reputation in the marketplace, tone at the top, qualified and independent teams as well as finality over pricing. All respondents will be intimated of the company’s decision at the end of each phase, regardless of the outcome.

We look forward to receiving your response.

Yours sincerely,

Mr. XYZ

Chief Financial Officer

Company ABC

Mumbai, India

Phone numbers:

Email:

Request for proposal (RFP): Mandatory Firm Rotation (MFR) | 3

A. Executive summary of the participating audit Firm

# Questions Brief description (required)

1 What characteristics best distinguish your firm from your competitors?

2 Summarise the potential benefits to our company by engaging with your firm?

3 Summarise the organisation and its structure as it is relevant to the engagement.

4 What is the relative size and strength of your firm in the professional services space?

B. Firm qualifications

# Questions Brief description (required)

1 Please provide an overview of the firm’s national and/or local resources.

2 Does the firm have global reach? What is the position of your firm in the global network?

3 What is the depth of experience the firm has in serving the clients similar to the size and complexity of our company? Do you understand the industry we operate in? Please share industry specific credentials of your firm.

4 How are the firm’s professionals kept informed of emerging legislative, regulatory, auditing and accounting issues?

5 How will you keep us informed of those issues that directly affect our company? Include/describe examples of your firm’s relevant thought leadership, industry participation, and publications.

6 Ind-AS and IFC are two key changes to financial reporting. Please provide a brief overview of your firm’s strength and knowhow in these areas.

7 What programmes does the firm have in place to help ensure that clients are satisfied with their services?

8 Could you share feedback available on record from your marquee clients, across different sectors?

9 Have you recently been inspected by regulators or examiners? What is the quality standing of your firm and the results of the engagements inspected?

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C. Engagement team

# Questions Brief description (required)

1 Whether the engagement team members possess the necessary knowledge and experience in their professional field? Whether the team has requisite industry experience?

2 Describe the engagement team organisation, the way the engagement will be coordinated, and how this engagement management approach will contribute to the effectiveness of the engagement.

3 Identify other firm resources that will participate in the engagement to ensure expertise in critical businesses of the company/client to support the audit team.

4 Whether the firm is in a position to allocate resources and people worldwide quickly and effectively wherever the firm needs them?

5 Please provide CVs for each key partner and manager in an appendix to your response.

D. Audit approach

# Questions Brief description (required)

1 Outline the firm’s approach in performing the audit (audit scope, deliverables, risk assessment techniques, interim work, year-end close, audit procedures and processes, timetable, and other matters).

2 Describe the firm’s approach in working with the Internal Audit and/or the tax department.

3 Based on your industry experience, what will be the key areas of focus for the audit? What do you see as the major audit risks for our industry and company?

4 Does the firm use high quality technology tools in the audit? How will you involve information technology risk management expert in the audit?

5 Outline the firm’s plan to ensure a smooth transition to the firm for the first-year audit period.

6 Describe the firm’s decision-making procedures for reviewing auditing, accounting, and reporting matters affecting the company. Who is the primary decision maker for audit-related issues, and what is the extent of this individual’s authority?

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7 Describe how the firm will ensure effective and timely communication of audit results with management and our Audit Committee. Describe the firm’s role in assisting the Audit Committee to fulfill its responsibilities to shareholders.

8 Describe the firm’s quality assurance process and the value it adds to your audit.

9 Describe how you will work with our team in a proactive manner to assess the impact and changes needed as arising from accounting changes and new pronouncements.

10 Who would be our single point of contact in your firm, for any audit related matter that arises globally in our audits?

E. Independence and confidentiality

# Questions Brief description (required)

1 Does the firm have any relationships that exist between your partners and staff and directors, officers, or key employees of the company that would impair firm’s objectivity or independence, in fact or by appearance? If any relationships exist, discuss how the firm propose to mitigate/eliminate such objectivity or independence issues.

2 Describe the process the firm uses to monitor and maintain independence from clients.

F. Fees

# Questions Brief description (required)

1 What is the firm’s pricing policy? Is it in line with the market?

2 Provide the list of services considered out-of-scope outlining an approximate hourly rate that would be billed for such services.

3 Can you summarise your value added proposition for the fee your firm plans to charge us?

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