Time is not far when Statutory Audits may be replaced by Forensic Audit and auditor will have to act as a bloodhound rather than a watchdog. Perhaps if the Auditors would have been given the rights and duties of a bloodhound as the CBI or such agencies have, no scams would have ever happened in the Financial World.

The whole mechanism of appointment and conduct of audit perhaps needs to be reviewed, reformulated and redesigned.

Apart from C& AG Appointment perhaps every other industry including banks has lost the independent approach in the appointment of Auditor. How it is possible that a Public Sector Bank to whom a Chartered Accountant have issued a Qualified Audit Report or wherein he declared an Non Performing Asset of few 100 crores against the wishes and whims of the Top Management will now appoint him as a Statutory Auditor when such Management itself becomes the appointing Authority.

Hence funda should be very simple, wherein public money is involved be it banks or listed companies appointment of Auditor should not be made at all by the Management itself. Based on the quantum of public money involved the entire approach of the Audit right from appointment to reporting should be in the most stringent, tough and independent manner.

However that is one aspect only, where we are today is because of our actions only as Srimad Bhagwad Gita says.

Perhaps we need to change the way we look towards our duties. Definitely there has been breach of trust on the part of professionals, when duty has been cast upon us by RBI and we as professionals have failed to report matters apparent from the records, we have failed to declare accounts as Non Performing Asset, which cannot be in any manner a Performing Asset. If we try to complete Bank Audit in a day, definitely such would be the results. There is need to introspect why we have failed to do justice with an Audit which is so pervasive that every Chartered Accountant happens to do, wherein abundant knowledge bank exists and which is definitely much travelled so far.

Recently there has been some news that some major banks met and has primarily decided to layoff the system of Statutory Audit, as even after spending thousands of crores on Audit Fees, the entire system has failed to bring the desired results.

Hence as the popular saying goes, you cannot clap with one hand. Both the reasons i.e. the appointment mechanism and audit environment on one hand and performance of auditors on the other hand are responsible for the current scenario.

As professionals, we are supposed to travel to areas like Chattisgarh with all mining scams or areas of Far East, Srinagar or areas near to Line Of Control. Though we are expected to act as CBI and unearth potential NPA’s in mining companies which later take the shape of big scams but forget about the security, being peculiar areas we are entirely dependent upon the Branch Management for even basic needs. So how come an auditor in such an environment would be able to issue an independent report. Hence apart from appointment which is always discussed much, what needs to be focused is Audit environment which is never discussed.

Very often we have heard when we go for bank Audits, BM will come and make excuses as my relative is ill/I do not have the requisite staff to show you the records and hence sometimes more than Audit what we sometimes do is to arrange records, request staff to stay back so that we can complete the Audit.BM & his staff would not definitely behave like this if a CBI/RBI enquiry is going on. It would not be wrong to say that Statutory Audit has lost its authority or in layman’s language has lost its charm. It is a clear management principle, Without Authority comes no responsibility.

So if an Auditor is expected a job of CBI must be provided with the tools and techniques along with the Audit environment of an investigation too. Having said so, on the part of professionals we also need to put forth the motto of ICAI and to take up the Audit with complete integrity rather than compromising in declaring the Non Performing Asset. Here it important to mention that this integrity does not comes with the stature of the firm or whether it is a firm conducting Central Statutory Audit. This has to come from within.

If you cannot dare to say wrong a wrong better not accept the assignment and bring disrespect to the profession.

Apart from the intent, we need to breakout the stale syndrome mechanism of doing the audits. We need to adapt to the new tools and techniques, we need to think differently and conduct the Audit with basis objective that public money must not go in wrong hands.

Hence perhaps we in fact need to change the entire overview of Statutory Audit. We need to bring independence not only in appointment but in entire Audit environment. Audit needs to be taken seriously by the Auditee and to be done seriously by the Auditor.

Perhaps time has come that wherever public interest is associated be it NGO’s ,Listed Companies, Investment Companies, Banking Sector, Autonomous Bodies divested with public funds, all such entities should be subjected to Forensic Audit. Forensic Auditor if so given responsibility should be given due authority and environment to investigate such matters and Auditor so given the duty should discharge in the best manner with full integrity.

Would like to conclude by only one line, what my Gurudev said while gifting me a pen, when I qualified as a Chartered Accountant, ”Beta is se sahi sahi likhna”

(Author CA Piyush Baranwal, DISA, Certified FAFP(ICAI),Certified in International Taxation(ICAI) can be reached at mail@baranwal.in or 9818133880)

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  1. CA. Shashi says:

    The authority must be segregate between appointing and auditee and first must be government authority.
    but what happened if such system would be changed?
    Is it working efficiently?
    Is 80% works on 20% hand?
    I don’t know. but present system of appointment must be changed for better tomorrow of social and professional.

  2. BSKRAO says:

    CAs are just commission agents, rightly said by CA.Ashok Aggarwal ! ICAI is also not worried about outcome of every Audit – Audit has now a days become just formality. There should be some results in every action, take the case of CAG Audit of Govt. books. But in case of CA Audit outcome is Nil/NA Report. Ex: Tax Audit in Income-Tax Act. Still, CBDT has retained Tax Audit U/s 44AB since past three decades without evaluating its utility. In the same Tax Audit cases taken up for scrutiny, all mistakes are detected by Assessing Officers. In order to gain fame, ICAI should think on above lines, rather publishing self appreciation in their magazines

  3. CA Suniiel R Karbhari says:

    Independence in appointment of auditors is must ,as such RBI ,MCA and C AND AG only should be appointing auditors ,of all those entities where public money is involved.

    As a professional , what is required is not only Intellectual independence but moral intelligence .

    And the pre requisite to get the best out of professionals , when any professional avoids Intellectual insolvency.

    I think all this will certainly restate the role of an auditor, as Watch dog and in that case ,investigative forensic audit in each case, can be avoided with better results.

  4. Anil Kumar Jain says:

    Independence of the Auditor can not be maintained until the Auditee and Appointer are not segregated. Standards shall further go down untill situation is rectified immediately. More scams are in the waiting as the auditors roll is under pressure from the management.


    Such things equally applies to Cost Auditor and Secretarial Auditor as well as they are also conduct audit functions and required to report fraud directly to Secretary, MCA.
    The involvement of CAG when government money involved should be extended when public money is involved as well so that the appointing authority and auditee are not the one and the same. The whole auditing environment should change and a greater role on this may be assigned to SEBI in respect of Listed Companies.

  6. CA Ashok Aggarwal says:

    Very true, in Moga as per latest voters list there are 72 practising ca in this city while actually 20 are really do practice in Moga the rest doing jobs in private organisations or doing businesses though retaining CP with them to have their sayin banks. Naturally they send their assistants and finish audit without doing real audit and thus allow banks to say that CAs are just commission agents

  7. Anil Arasa says:

    Well said!! Things need to change with the changing environment.. Otherwise the very purpose of being CA is not worth..
    “If you r not changed with the change you will be exchanged with the changed ones”!

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October 2020