ICAI report will not help in regulating the profession and in prevention of fraud like Satyam: MCA officials

The ministry of corporate affairs, or MCA, has all but dismissed the findings of a panel set up by the Institute of Chartered Accountants of India (ICAI) because it contains little that will help in regulating the profession and ensuring that frauds such as the one at Satyam Computer Services Ltd don’t happen again.

Two senior MCA officials said the new Companies Bill will instead be the basis on which the role of chartered accountants is characterized.

“What high-powered committee report on Satyam? It has no meat and has not suggested anything revolutionary,” said one of the senior MCA officials, requesting anonymity.

“Wait for the new Companies Bill to be introduced and the role of auditors will automatically be defined and the profession be more tightly regulated.”

ICAI, which regulates chartered accountants and comes under MCA, had submitted the report in May urging the government to tighten laws governing the profession to avoid such frauds.

The panel recommended that sub-contracting of audit work be more strictly regulated, the names of errant accountants be made public and a corporate governance code be defined for independent directors, audit committees and chief financial officers of publicly listed companies.

The report also suggested strengthening ICAI’s role in investigating auditors and companies suspected of fraud. The report, submitted in two parts, has been more or less shelved by MCA.

The new Companies Bill was referred to a House committee for detailed study after being introduced in Parliament last year. The revised Bill, incorporating the parliamentary committee’s recommendations, is likely to be introduced in the current session, which is scheduled to end today.

The Bill has recommended the setting up of a national advisory committee on accounting and auditing standards to advise the government.

“This will take care of auditing norms to be followed by the companies and leave no scope for ambiguity,” said the second MCA official.

While there is an advisory body for accounting standards, auditing norms are generally initiated and monitored by ICAI.

ICAI president Amarjit Chopra defended the report submitted by its high-power committee.

“It has gone beyond setting standards and suggested how the profession of auditing can be continuously monitored in order to limit occurrences of big frauds,” he said.

However, he had no quarrel with the government over its views.

“If the ministry wants to bank on the new Companies Bill for setting the auditing practice in order, ICAI has no problems,” he said. “I would also say the new Bill has a provision for introducing new norms.

The report had been submitted, after due deliberation by the ICAI council, with the idea that frauds such as the one at Satyam don’t surface again.

Hyderabad-based Satyam has been at the centre of India’s biggest corporate fraud inquiry after founder B. Ramalinga Raju confessed in January 2009 to having mis-stated accounts to the tune of ‘7,136 crore over several years.

The government asked ICAI, one of several agencies investigating the fraud, to look into auditing lapses at Satyam.

The report added that all ICAI members and auditing firms found guilty of misconduct should be listed on the regulator’s website three years after their membership has been cancelled.

ICAI is currently investigating the role of S. Gopalakrishnan and Srinivas Talluri, two senior Price Waterhouse, Bangalore, partners who were recently released on bail. The two were found prima facie guilty of misconduct by ICAI along with four others, including V. Srinivas, former Satyam chief financial officer; and V.S. Prabhakara Gupta, former head of the company’s internal audit cell.

Gopalakrishnan, who was an ICAI council member, was removed as a member of its specialized committees.