SEBI Committee on Disclosures and Accounting Standards (SCODA) has recommended mandatory rotation — every five years — of the partners of the audit firms signing the accounts of a listed company.
This is to ensure that the statutory auditors are independent from management, and also to break any continued long-term association of an audit partner with the management, said a discussion paper by SEBI summarising SCODA’s observations. The rotation of audit firms themselves was ruled out as being not “practically possible.”
SCODA also recommended that shareholders’ approval be obtained for appointment of the accounting firm a company wishes to appoint.
But, finally, the onus would be on the company’s Audit Committee to ensure independence of the audit firm in executing its task, the discussion paper said. While not recommending any specific qualification for the CEO or CFO of a company, SCODA was of the opinion that the audit committee is responsible for ensuring that the CFO has the necessary accounting or related financial management expertise.
SCODA, however, felt it would not be prudent to mandate that the internal audit function be carried out by an external audit firm, which SEBI had proposed.
This is the biggest mistake the committee has done. Now the instances will be even bigger and only smaller chartered accountants will be caught and punished.
The committee clearly overlooked the structure of Indian CA firms. The myth of audit and auditors needs to be reviewed again. Today there are dozens of firms where even though 20 partners are there in reality one of them is the real owner and all others are just paid partners. Now what is the Independence, these paid partners have got in case of a rigged balance sheet. The committee has given a valid reason to rotate the partners as an order. Now the senior CAs will be happy that the committee has given them a route to escape the liability by asking some paid partner to sign the balance sheet. I sincerely doubt that the committee itself is filled with some senior and influential CAs.
For outside world anyway a partner is a partner doesn’t matter whether in reality he is a employee or otherwise.
There is no shortage of CAs in India to do such paid job.