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The Securities and Exchange Board of India (SEBI) has passed a consent order regarding the Reliance Infrastructure and RNRL investigation that showed misrepresentation of investments. In an exclusive interview with CNBC-TV18, Amarjit Chopra, President of Institute of Chartered Accountants of India (ICAI) says that though ICAI cannot probe into affairs of the company, they will take up the matter of the professional conduct of their members.

“ICAI is concerned about the transparency of the financial statement and as far as the state of affairs is concerned,” he says. He also adds that the investors will be looking at Reliance Infrastructure and RNRL with a lot of skepticism.

Below is a verbatim transcript of Amarjit Chopra’s interview with CNBC-TV18’s Shereen Bhan.

Q: The SEBI consent order refers to misreporting in 2008, 2009 and 2010 annual reports as well as the P&L. SEBI cannot probe any further as far as this matter is concerned but other government agencies and government bodies can do so. Is the ICAI going to investigate this matter or take up this matter?

A: We can only look at the professional conduct of our own members.

One has not been able to really go through the order in detail but if professional conduct of the member of the institute is in doubt, we will look into that particular aspect. We are not going to probe into the affairs of the company but we will look into the conduct of our own member.

Q: What will be the risk for the new auditors who will have to rely on the old balance sheets?

A: There are prescribed standards of auditing which are recognized world over. We follow the standards which have been pronounced by the International Auditing and Assurance Standard Board (IAASB).

Whenever a new auditor comes in he has to gain the knowledge of the business and he has to look closely at the opening balances. All the risks will have to be assed by the new auditors. If the SEBI order says that the profit and loss in respect of certain investments and the categorization with regard to the nature of the investments has been under cloud; then the auditors will have to get it modified or rectified.

Q: How should investors and shareholders now be looking at the balance sheets of Reliance Infra and RNRL?

A: As the President of the ICAI, I am not someone to advice the investors. However, we are only concerned about the transparency of the financial statement and the state of affairs. It is certain that the investor will be more skeptical about things.

If the penalty has been imposed and it is the consent order then it has been agreed to that the auditor would not be appointed for a period of three years. The categorization and the classification of the investment are under cloud. The investor will be cautious and will be looking at it with more skepticism.

Q: What is your initial assessment of the order, since, it is a consent order?

A: Once the company has gone in for the consent order and there are other applicants, we will be looking at the misconduct of our member and the conduct of the other directors who are charted accountants.

ICAI will not leave any stone unturned to make sure that we live up to the expectations of the public.

If at all there are certain things which have gone wrong and the conduct the members are in doubt, we will definitely like to proceed with action. The directors, themselves, have gone for the consent order and have agreed to the penalty as well. Hence, they do agree that there have been certain wrong doings within the financial statements. Keeping that in view, it is a matter which is serious enough and we definitely need to look into.

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