Companies may soon have to get their financial statements vetted by more than one auditor. The Institute of Chartered Accountants of India (ICAI), the country’s accounting and auditing rule-maker, is considering a proposal to make it mandatory for companies to get their books audited by more than one auditor so that each of the audit firms could observe the practices followed by the other. The regulator believes the move will ensure that auditors do not enter into a cosy arrangement with the company management.
In its search for various checks and balances to ensure credibility in the work of auditors, ICAI is examining new ideas like promoting joint audits rather than a single-firm audit and a scheme of rotation of auditors. While the management
of companies may succeed in influencing a single team of auditors, it shall not be easy for them to influence two or more professional groups, an official in the regulating body, who did not wish to be named, said.
The proposal is significant in the light of the Satyam financial scam, in which the company’s promoter group allegedly influenced its statutory auditor, Price Waterhouse, to clear its financial statements despite there being various accounting irregularities. Price Waterhouse had done the audits for Satyam for seven consecutive years, the period when the fraud has been admittedly committed.
Joint auditing of financial statements is a common practice within public sector undertakings (PSUs), due to the huge volume of data auditors are required to go through. Even as PSUs engage joint auditors for the reason of a judicious division of their audit work, private companies are not always in favour of engaging more than one auditor. Audit in India can be done by CAs whose names are registered with the ICAI. Auditors of PSUs are selected from a list of chartered accountants whose names are cleared by the office of the Comptroller and Auditor General of India (CAG).
Even though there is no clear rule on the number of auditors to be put on an audit assignment, there is a need to take these steps so as to retain people’s faith in the credibility of such audit reports. The move is also likely to ensure greater independence of work for the auditors, the official added.