Revenue targets are increasingly the norm for private practice lawyers, but are these useful? Rebecca Abraham reports
As lawyers and accountants coexist and compete, their fortunes have had a tendency to rise and fall hand in hand. However, in recent months, their paths have diverged with accountants, more specifically auditors, across India having run into strong headwinds.
In January, the 11 partnership firms making up the Price Waterhouse network in the country were handed a two-year ban from issuing audit certificates to listed companies as a penalty for the firm’s role in the 2009 Satyam scam.
Then came increased instances of auditors resigning midway through their terms. Among the most prominent of such resignations was that of Deloitte, which stepped down as statutory auditor of a listed fruit juice maker, Manpasand Beverages, at the end of May.
The company described Deloitte’s exit as “a minor hiccup”, but, for auditing firms, such resignations are significant when seen in the light of the mandatory audit rotation that came into effect in April 2017, triggering the loss of longstanding clients. A rush to win new clients ensued and commentators suggested that cutting corners during the vetting of prospective clients might well have contributed to the rash of recent auditor resignations.
A senior audit partner at one of the larger firms was recently quoted in The Economic Times as saying: “A year since the audit rotation, the skeletons are tumbling out. The firms realize that revenue targets for audit partners could backfire because the most important thing about auditing is perception.”
Nevertheless, increased regulatory scrutiny and the audit rotation process appear to have set in motion a realization that audit partners labouring under revenue targets do face pressure to sign on dodgy clients.
Faced with no such constraints, larger law firms are increasingly specifying revenue targets for their partners.
While such targets are norms in most developed jurisdictions, it is remarkable that the practice is being adopted in a legal market where sole proprietorships continue to dominate the landscape and where power within partnerships, which are few and far between, is typically in the hands of founders.