CA Ugandhar Nettyam

CA Ugandhar NettyamAll the while, we are witnessing more emphasis on accounting standards, guidance notes, CPE seminars on new developments etc.  Yes, it is essential for a Chartered Accountant a.k.a. auditor to be abreast with new developments and align themselves with fellow professionals in developed world.  What is really missing, in this frenzy, is – deviating from the very genesis of the profession.  In this article, I would like to discuss on one of the most basic traits of an auditor.

“INDEPENDENCE” – a trait every auditor is proud of claiming and various regulatory bodies assume of auditors.  Is it still an attribute that is bringing clients and auditors together or has time caste any shadows on this integral feature of auditor?

When more and more certifications and services are being brought in to auditors’ scope and when all regulators are relying, why this question?!

Traditional relationship between auditor and a client is taking a deviation.

Reason no.1: First culprit being the role is moving away from being a “Profession” and getting closure to being “Business”.

How: Increasing competition among chartered accountants and younger lot is looking to meet the earning expectation at any cost.  Older practitioners cling on to their clients or vice-versa and new clients also going to older practitioners in anticipation of experienced advice is leading younger practitioners to offer whole lot of services to profit minded entrepreneurs by bundling services.  This is taking the profession to a new level like – “If one is statutorily restrained to render such service also, they are constrained to take up and get it authenticated by fellow professional exclusively for statutory compliance”.

Bigger audit firms setting targets to its member employees / partners and offering bonus / incentives based on business development a.k.a. new client acquisition.  Basic imagination of current generation on revenue earning is overcoming their beliefs and commitment to professional independence.

Reason no.2: Client is choosy about auditor and he has expectations from auditors.  Client is more and more expecting auditor to be a management consultant than an auditor.  This is more true in case of new generation of entrepreneurs.

How: An entrepreneur comes to an auditor with an expectation that he/she advises him/her with best form of organisation to choose from, to keep his books of accounts, to advise on tax planning, to arrange for funds and so on.  In such a situation, even if one doesn’t like to compromise, he/she is forced to accept for a simple reason of not forgoing a client.  This is supported by a simple human psychology that “if i do not accept, somebody else shall be willing to do that.  Then, why not me.”

Reason no.3: Promoter / Investor choosing the auditor without any role for other stakeholders.

How: It may be difficult for many to accept this fact.  But, this is the fact.  As Nehru had once quoted, “A fact is fact and will not disappear on account of your likes.”  Promoter appoints someone as an auditor for the reasons quoted above.  Then why investor is appointing – if someone answers that he wants to know the facts, probably we are wrong.  Current day investors are not investing in business and for returns from business, rather, they are investing for instant exorbitant returns and how those returns are achieved is an open secret.  They are looking for auditor to help them in getting numbers that support their objectives.  It is again another open secret that every investor is having their trusted auditors and this indicates at their lack of trust on others.

These are only a few pointers at auditors’ losing their independence. If auditing is a mechanism of independent review of books of account with a view to give fair picture for all stakeholders, above pointers indicate at why the objective is getting defeated.

Does it mean, no regulator is keen on improving? – a firm ‘No’ is my answer. We have seen companies act bringing about refreshing changes in the right direction by introducing rotation of auditors after certain numbers of years. But, still a lot more regulators shall also move in that direction esp. tax audit and internal auditors since majority of the observations are swept under carpet and a clearing distorting picture can be seen if independence can be ensured.

My advice shall go with formation of panel of auditors and appointment of auditors from the panel at least for a select category of companies. For this purpose we may draw reference to bank branch auditors’ panel and their categorisation with a bit more transparency in allotment of audits which is currently missing in bank branch auditors’ panel.

All this is possible only if when bring parity among all the auditors on competency levels. Current system of CPE also require upgrades for real experiential learning to achieve parity.

With all these developments, we hope auditor remains independent for times to come and continues to enjoy the dignity of profession and respect from all corners of the society.

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June 2021