Hit hard by the Satyam scam and the damage it dealt to the auditing profession, regulator ICAI is considering a proposal to penalise audit firms while also looking at radical steps like rotation of audit firms every five years, a measure also favoured by the government.
Sources said the Institute of Chartered Accountants of India (ICAI), that governs auditing profession in the country, has taken a serious view of repeated offending firms and is looking at fixing responsibility on them, as is done in countries like the US, Japan and UK.
ICAI president Amarjit Chopra told that the matter would be discussed at ICAI’s Council meeting in late March. “Yes, one of the issues in front of the Council would be related to steps that need to be taken to strengthen and repose faith in auditing practices in India, post the Satyam scam,” he said, though refusing to divulge further.
Sunil Talati, former president of ICAI, said the regulator was concerned about fixing responsibility on offending firms. “While, currently a partner may be punished and even barred from the profession, there is no impact on the existence and growth of the offending firm that remains insulated from disciplinary proceedings. The ICAI is now contemplating changes to its Act as well as its regulations to incorporate clauses to punish erring firms as well,” he said.
While the matter was discussed by the previous Council of ICAI, its new Council will firm up the recommendations and submit them to the government. “The possible action against the firms would include monetary penalties. Various aspects will be discussed that include issues like quantum of punishment and penalty, whether the whole firm gets penalised or only the respective branch that carried the audit, etc.,” Talati said.
When contacted, representatives of big audit firms said they were not averse to the move but first there was a need to define auditing practices and processes for firms. “The processes and practices required to be followed by audit firms need to be specified first. If there is any deviation from these, then action can certainly be taken,” said PR Ramesh, head of audit at Deloitte India.
Sharmila Karve, assurance leader at Price Waterhouse India, said it was also imperative to have an independent regulator to judge such cases. “We are nearly self governed now. Therefore, we need to have a set of defined processes for firms and this should be controlled by an independent regulator.”
On the issue of rotation of audit firms, most of the officials said this was a practice that had not been successful anywhere in the world. “It has not worked anywhere. It’s not useful as by the time an auditor gets a grip on a company and starts adding value, it is time for rotation. It helps no purpose,” Karve said.