Draft C&AG Empanelment Policy 2026–27 Issues Affect CA Firm

Draft C&AG Empanelment Policy 2026–27 – Issues Affecting Small & Medium CA Firms & Suggested Policy Interventions

While the objective of the Draft Comptroller and Auditor General of India Empanelment Policy 2026–27  to strengthen audit quality, accountability, and governance—is fully appreciated, certain provisions, if implemented in their present form, are likely to result in unintended, inequitable, and structural exclusion of competent SMPs, due to factors largely beyond their control. This policy affected to Small and Medium Chartered Accountant Firms, particularly those operating in non-metro cities, small towns, and non-corporate locations

Unequal professional ecosystems across locations : Corporate and PSU opportunities are concentrated in metros and business hubs, while smaller cities have limited auditee density. When uniform turnover/income‑linked measures are applied nationwide, firms in low‑opportunity regions face a systemic handicap unrelated to competence. The Ministry of Corporate Affairs’ RoC‑wise company master data (publicly available for analysis) evidences significant area‑wise variations and can be used to calibrate benchmarks.

Principle of equity compare like with like : A location‑agnostic scoring approach effectively compares firms exposed to very different opportunity sets, undermining natural justice. A location‑sensitive calibration using MCA company density (or PSU presence) can resolve this without diluting quality expectations.

Specific issue on Draft C&AG Empanelment Policy 2026–27  Policy Provisions

Weightage architecture and experience recognition

The C&AG policy uses a points system combining quantitative/qualitative parameters (partners, association, employees, experience, turnover, peer review, Audit Quality Maturity Model, additional qualifications) for empanelment and for allotment (with stricter criteria for major audits). This is appropriate in principle, but the mix of parameters can unintentionally favor scale over partner‑led merit in regions with few auditees. Over successive empanelment cycles, weightage for partner-related parameters has been progressively reduced, including number of partners, FCA qualification, and length and continuity of association. Simultaneously, the weightage for parameters such as aggregate turnover, income benchmarks, aggregation/network strength, and manpower size has increased.

The Draft Comptroller and Auditor General of India Empanelment Policy 2026–27 adds/expands elements such as Audit Quality Maturity Model points and detailed skill‑upgrade credits—welcome quality leversbut they should not crowd out long association of partners and continuity, which drive judgment quality in public sector audits.

Requests to change in Draft C&AG Empanelment Policy 2026–27  

• Restore meaningful weight to number of partners, FCA status, and length of association, ensuring these outweigh brute size proxies.
• Cap the turnover contribution to a moderate ceiling to prevent “scale‑only” leapfrogging in low‑opportunity geographies.

Partner‑income thresholds used as eligibility screens

The current C&AG Empanelment Policy for FY 2025–26 uses minimum partner compensation thresholds (e.g., for FT FCA partners: ₹6.00 lakh in select metros vs ₹3.60 lakh elsewhere) and minimum percentage shares of total firm compensation to validate full‑time status. In practice, these thresholds can disqualify otherwise capable SMPs when PSU/corporate audit fees in their regions are structurally low.

Requests to change in Draft C&AG Empanelment Policy 2026–27  

• Treat partner income as non‑disqualifying or indicative only (not hard cut‑offs), at least for non‑metro stations.
• If retained, link thresholds to a location coefficient derived from MCA company density/PSU presence.

Audit fee fixation and sustainability

While Comptroller and Auditor General of India appoints auditors u/s 139(5) & 139(7) of the Companies Act, 2013, audit fees are fixed by the company under Section 142 (C&AG’s appointment terms reiterate this and require a memorandum of fee). Audit fees should be benchmarked considering PSU turnover, Nature and complexity of operations, Risk profile, Number of audit locations, Audit man-days & Audit Quality Maturity Model and compliance requirements. Hence, firms have limited control over consideration despite statutory responsibilities and evolving quality demands.

Requests to change in Draft C&AG Empanelment Policy 2026–27  

• Publish a rational fee framework (non‑binding benchmarks) factoring: turnover, complexity/risk, multi‑location spread, audit man‑days, and compliance overheads (including Audit Quality Maturity Model), with INR 15 lakh as a reference minimum for major audits (subject to risk/size uplift).
• Encourage auditees to adopt these benchmarks, and require disclosure of the basis for deviations in the fee memorandum.

Recognition of all audits allotted via C&AG

Where audits are allotted/assigned through the C&AG process, the resultant experience should always carry a scoring value consistent with the statutory risk and accountability borne by the auditor. (Currently, scoring depends on stipulated categories/thresholds; some assignments can fall outside the “countable” buckets.)

Requests to change in Draft C&AG Empanelment Policy 2026–27  

Treat all Comptroller and Auditor General of India allotted statutory audits as experience‑earning (with appropriate caps to avoid gaming), so SMPs are not denied progression pathways for reasons beyond their control.

Prospective application and transition

The General Instructions already require data “as on 1 January” and note that adverse changes after the cut‑off that reduce rank can be considered, which effectively creates the perception of retroactive impact. A clear prospective‑only change management policy with reasonable transition periods would uphold legitimate expectations.

Requests to change in Draft C&AG Empanelment Policy 2026–27  

Codify that new criteria/thresholds apply prospectively, with phased transition for SMPs to adapt (e.g., two cycles).

Inter‑Ministerial support to remove structural frictions (Tax Policy)

Section 40(b) places a ceiling on deductible partner remuneration. The Finance Bill 2024 doubled the limits w.e.f. AY 2025‑26 (e.g., ₹3,00,000 or 90% of first ₹6 lakh of book profit; 60% thereafter), but structural frictions remain for MSME professional firms.

Partnership firms/LLPs continue to face a flat 30% tax rate (plus surcharge/cess), whereas domestic companies can opt for 22% under Section 115BAA (effective ~25.17%) or 25%/30% standard rates, creating a parity gap for MSME partnerships.

Requests to change in Draft C&AG Empanelment Policy 2026–27 & to be forwarded to MoF/GoI:

• Re‑examine Section 40(b) for professional MSME firms to avoid de facto multiple‑layer taxation on the same earnings.
• Consider rate alignment (or reliefs) for partnership firms/LLPs closer to concessional company rates to ensure a level playing field.

Use of MCA data to design location‑sensitive benchmarks

MCA maintains company master data (and RoC‑wise datasets on the Open Government Data platform). This resource can objectively compute corporate density indices and PSU presence, enabling policy to normalize thresholds/weights across stations. Direct a joint Comptroller and Auditor General of India MCA working group to build a Location Coefficient (per district/RoC) and apply it to turnover/income thresholds and fee benchmarks.

Key suggestions from before finalizing the Draft C&AG Empanelment Policy 2026–27.

• Restore meaningful weightage for number of partners (FCA/ACA), long association, and firm continuity; cap the score share of turnover.
• Introduce location‑sensitive coefficients using MCA RoC‑wise data/PSU presence.
• Abolish retrospective/back‑dated application; adopt prospective rollout with transition of at least one full cycle.
• Treat partner income thresholds as indicative, not disqualifying—especially for non‑metro locations.
• Issue a rational audit fee framework with a reference of INR 15 lakh minimum for major audits, calibrated by risk/size/man‑days/Audit Quality Maturity Model.
• Ensure all Comptroller and Auditor General of India allotted audits carry experience/scoring value.
• Provide transition support for existing SMPs (e.g., phased targets, capacity‑building credits)
• Recommend Section 40(b) rationalization and explore tax‑rate parity for MSME partnerships vis‑à‑vis companies (22% u/s 115BAA).
• A data‑driven, inclusive, experience‑sensitive, and prospective framework coordinated with MCA and MoF will improve audit quality while ensuring SMPs from non‑metro locations are not structurally excluded. while finalizing the Empanelment Policy 2026–27.

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