THE Institute of Chartered Accountants of India (ICAI), the regulatory body for the accounting profession, plans to scrutinise books of companies that have seen independent directors resign in the last two months, after the role of such directors came under intense scrutiny in the wake of the major financial fraud at Satyam Computer Services.
Some 181 independent directors have resigned from company boards in the last three months, according to Directors Database of Prime Database and the Bombay Stock Exchange. These include names such as Ballarpur Industries, PowerGrid Corporation of India, Power Finance Corporation, CMC, Essar Oil, Technocraft Industries (India), Jindal Drilling & Industries, Maharashtra Seamless, Pyramid Saimira Theatre and MIRC Electronics.
Â Â While there is no suggestion of any financial wrongdoing by these companies, the surge in resignations has left the ICAI concerned and prompted its move to look closely into these firms financial statements.
It has become a cause of concern as many independent directors have put in their papers in such a short interval of time. We don’t know whether they have left because of personal reasons or its due to problems in their companies, ICAI president Uttam Prakash Agarwal told Sunday.
Mr Agarwal said the ICAI would write to other regulators if its scrutiny uncovers non-compliance by any company, and it would cancel the licence of the chartered accountants that signed off on the firms accounts.
The sheer scale of the financial fraud at Satyam, once regarded among India’s best corporate names, has put an unwelcome spotlight on accountants and independent directors, since they failed to detect the fraud being perpetrated under their noses and signed off on the company’s accounts year after year.
The ICAI plans to issue guidelines that require every firm to engage chartered accountants, which are its members, Mr Agarwal said. Otherwise, the ICAI will not be responsible for any misconduct, he said.
Discouraging other members
ACCOUNTING sector experts say the role of independent directors on company boards is being questioned following the Satyam episode. Their responsibility is not clearly defined. So, we have seen many independent directors resigning from respective boards… Either they are reevaluating companies where they have joined earlier in order to find the best fit, or they might be sitting in many boards and hence they want to decrease the number, said Richard Rekhy, COO, KPMG. Meanwhile, Mr Agarwal called the governments move to jail Satyams auditors as perhaps too harsh as their guilt was not proven and said the ICAI planned to write to ministries about it. This may discourage other members and even newcomers from joining this profession, he said. According to government rules, independent directors must constitute a third of any listed companys board if the firms chairman is not a part of promoter group or its management. However, if the chairman belongs to the promoter group or is part of the management, independent directors should constitute half the board.