The Ministry of Corporate Affairs (MCA) has shelved its idea of auditing the books of listed companies by independent auditors.It was part of the joint plan of market regulator Securities and Exchange Board of India (Sebi) and the ministry to conduct peer review of audits, which involves getting the audit reports of a company vetted by another auditor for a second opinion.
To start with, the proposal was intended to audit 30 companies on the Bombay Stock Exchange and 50 companies of the National Stock Exchange.
“It is now decided that the audit reports will be vetted by a panel of auditors appointed by the financial advisory board of the Institute of Chartered Accountants of India (ICAI), only for cases where any irregularities are found or regulatory or supervisory need requires a second opinion,” said officials.
According to the earlier proposal, the audited balance sheets of all listed companies were proposed to be audited by independent auditors appointed by the registrar of companies in their respective regions. MCA had then decided to ask various other regulators to make the peer review of audit mandatory for companies regulated and supervised by them.
These included the Reserve Bank of India for banks, Sebi for listed companies and the Insurance Regulatory and Development Authority for insurance companies. The idea was to avoid accounting irregularities in at least those companies or financial entities where public funds are at stake.
However, sources at ICAI said the government did not find enough trained auditors to check what another chartered accountant of 10-15 years of experience has done. Therefore, first such auditors have to be trained and then this review of audits should be made compulsory, experts said.
The peer review of audit was proposed in the aftermath of the Rs 7,000-crore (Rs 70 billion) accounting fraud by Satyam Computer Services , in which the founder of the IT firm confessed to manipulation of books.
Sebi had then recommended that all listed companies be audited by practising chartered accountancy firms or individual auditors.