Setting aside apprehensions by India Inc, Government is all set to go ahead with making it mandatory for companies to rotate their auditors every five years. Corporate affairs minister Salman Khurshid will push for such an amendment in the new companies bill pending in the Parliament. The new bill provides for change of auditors every five years.
“It should be done. If profit making PSUs have started rotation of auditors every five years then there is no reason why other private companies should not follow the same”, an official from corporate affairs ministry said on condition of anonymity.
He said that if an auditor is involved in looking into a company’s books for “donkey’s number of years” then this might lead to deceitful practices. “Sometimes it is the trust, due to so many years of association among the auditing firm and the company that leads to Satyam like happenings”, he said. “Going ahead with the proposed recommendation would be an historic reform that would give more scope to transparency in keeping faith of millions of investors intact”, he added.
Indicating the rising number of cases of corporate misconduct, the official said, “Long term association may sometimes develop a uncanny comfort with a hidden deal between the auditor and the firm, price of which may be huge for the poor investors”.
The recent proposal came up during review of the Companies Bill of 2009 by Parliamentary standing committee on finance headed by former finance minister Yashwant Sinha.
That is not all. Individual auditors cannot hope to continue their association with the client after they have completed 3-5 years of consecutive term by going to another firm.
Ficci DG, Rajiv Kumar supported the Yashwant Sinha panel’s recommendation. He told Financial Chronicle that the parliamentary panel’s suggestions must be should be accepted.
“It should be implemented immediately. This would bring in the required transparency in the system and would make the management more accountable”, Rajiv Kumar said.
Kumar advocated for stricter auditing norms “Companies not complying with the norms should be debarred from doing auditing”, he said.
“It will be these auditing firms who will lose business in the eye of any such implementation but would surely enhance corporate governance level in India”, Jyotirmoy Jain, advisor and head banking, finance division, Assocham said.
He said joint auditors could maintain better standards of audit. “Insurance and banking both work with more than one auditors and has given better results”, Jain added.
Meanwhile, Institute of Chartered Accountants of India (ICAI) president Amarjit Chopra seems not so jubilant with these recommendations. “If government wants to try these new recommendations we have no reason to oppose but rotation of auditors in small companies is not going to help much.”