The entry of A.F. Ferguson & Company (AFF) into the Deloitte Haskins & Sells (DHS) fold has created, on a number of counts, the top audit firm in India. Apart from DHS, AFF is the fifth company under DHS umbrella after S.B. Billimoria & Company, C.C. Chokshi & Company, Fraser & Ross, and P.C. Hansotia & Company. Together they audit 215 of the companies listed on the BSE. The PricewaterhouseCoopers (PwC) and Lovelock & Lewes combine has 124. (Comprehensive data on private firms and non-audit services is not available.)

DHS is tops on other counts too. It audits 45 of the public companies with net profit of Rs 50 crore or more (See ‘The big client stakes’). PwC is next with 36. In fact, DHS companies have a virtual monopoly over the Tata group — they audit 39 of the 86 companies in the CMIE database, including most of the top companies. (See ‘Trust of the Tatas’).

After AFF’s entry, DHS’ already big family has grown bigger. With the addition of 30 AFF partners, the total number is almost 100 now. PwC has about 60 while Ernst & Young makes do with 52. And the number of employees in the combined firm stands at about 2,000.

For DHS, ‘arrangements’ with other audit firms to bring them under the DHS umbrella has been the way forward. All of them continue with their own identities. So, while DHS and S.B. Billimoria joined up in 1999, they still are separate firms with different pay structures. The attraction of being associated with a global brand like Deloitte is that it becomes easier to attract and retain clients. And with Indian companies expanding abroad and foreign ones doing the samehere, it doesn't hurt to have auditors with global expertise. Besides, a DHS member company can handle audit while another can offer other services. So business does not have to be passed up because of conflict of interest.

Holding the firms together are common partners. Some of the partners of the member firms join DHS as partner. The main partnership is akin to a board of directors. They elect a managing partner and chairman. Such arrangements avoid some of the problems of traditional mergers.

But they can also lead to situations similar to an oversized cabinet ministry. In the combined Deloitte setup, there are three joint managing partners at DHS — Dileep Choksi from C.C. Chokshi, Udayan Sen from S.B. Billimoria and Mukund Dharmadhikari from AFF. Then there are two positions for non-executive co-chairman of DHS — N.P. Sarda from DHS and A.K. Mahindra from AFF. But then that might just be the way to make the ‘arrangement’ work!