The Institute of Chartered Accountants of India (ICAI) has decided to review financial statements of 150 listed companies across bourses as part of its policy to tighten accounting standards in the country after the Rs 8,000-crore Satyam scandal. Any anomaly discovered would be forwarded to the ministry of corporate affairs (MCA) and market regulator Sebi for appropriate action.
According to ICAI president Amarjit Chopra, the probe would be conducted by the Financial Reporting Review Board (FRRB). The board, set up in 2002-03, has members ranging from Comptroller and Auditor General of India officials to senior members of ICAI. “Since we do not have the powers to take action against companies (involved in fudging accounts) we will pass on the information to the MCA and Sebi,” Chopra told FE.
The accounting regulator would rely on tip-offs from industry sources and media reports to select the companies for the probe. Though Chopra did not share the names of the companies to be brought under scanner, he hinted that some big corporate brands could be probed as well. “We will pick up companies from the BSE and NSE… say the top 30 from each… mostly we rely on media reports,” he added.
Currently, ICAI is not empowered to order for the books of companies. “Our probe would start once the companies file the financial statements, which is available in public domain,” Chopra clarified.
In fact, the institute would write to the government proposing amendments to the Chartered Accountants Act, 1949. “Our proposals would be based on the recommendations made by the high-powered committee report (submitted to the government last year),” Chopra said.
The general council of the institute is slated to meet in the first week of May after which the proposals would be sent to the government. “We will seek more teeth for the FRRB… our proposal would be sent to the government before May 15,” Chopra said.
As reported by FE earlier, the government is mulling the option of giving more teeth to the accounting regulator to create more transparency for foreign audit firms practising in India. The MCA is expected to moot amendments to the Act later this year.
Apart from the probe initiated by ICAI, the corporate affairs ministry has set up a special software-based system called the Early Warning System. The EWS is expected to throw up any unnatural development based on the scrutiny of quarterly results of the companies, public announcements, filing with exchanges and media reports among others.
Satyam’s was not an one-off instance and, in fact, this practice has been known even to ordinary public, what to talk of the members of the Institute doing audits for decades. Even the accounts of some of the largest PSUs, which are still hundred percent President-owned, if truly audited, will open pandora’s box as in most cases their profits are inflated to issue dividends and present the dividend cheques to the Ministers with a lot of photo-op and fanfare/publicity! And all this is within the knowledge of the CAG too. Satyam’s case is merely an eye opener. Many huge private companies (including banks!) who were searched by the IT department and had to disclose their unaccounted income before the settlement commission never disclosed these facts in their published annual accounts/reports, thus totally keepinh their stakeholders in the dark and depriving of their rightful share in those profits. These cases were represented by CAs who were not always the concerned auditors, but can they avoid their responsibility and liability to the Institute?
So, this is again a farce, notwithstanding the good intentions of the present President of the Institute. He cannot fight against the standards prevailing in his profession. Period.