In a bid to avoid accounting frauds of the type that hit Satyam Computers, now called Mahindra Satyam, in January this year, the Ministry of Corporate Affairs (MCA) has decided to scrutinise the account books of all registered companies — listed as well as unlisted — in the country.
The mammoth exercise will be outsourced to chartered accountants, companies and cost and work accountants. A pilot project will shortly be launched — circulars have been sent to all offices of the Registrar of Companies — and expanded on the basis of the results.
“The priority will be to see that we scrutinise the balance sheets of all listed companies. Though there are around 5,000 listed firms, the actively traded ones will be less than 2,000. So, those companies are going to be the first,” a senior ministry official said.
The official clarified, however, that, “This does not mean unlisted companies will not come under scrutiny if irregularities are found, or complaints are registered against them.”
He added that the eventual goal was to have the balance sheets of all registered companies audited. “It will be an ongoing process,” he said. India has about 900,000 registered companies.
Currently, over 200 officials who are associated with the 20 field offices of the Registrar of Companies conduct a random scrutiny of registered companies.
The ministry officials did not specify the number of professionals that will be empanelled, saying individual field offices have been given the powers to outsource the jobs.
The size of the outsourcing will also depend on the number of fresh annual reports in each regional centre. “Registrations are not evenly spread across the country. Offices in Gujarat, Maharashtra, Kolkata, Delhi and so on are expected to handle heavy loads,” officials said.
Although the exercise will be outsourced, it will be monitored by the government. “The hired professionals will be made accountable for the observations they make,” the ministry official said.
Welcoming the move, Institute of Chartered Accountants of India (ICAI) has asked its members to empanel themselves. Institutions like Institute of Company Secretaries of India and Institute of Cost and Works Accountants of India are also preparing a list of professionals who are willing to be part of the exercise.
The professionals will also help the officials draft or scrutinise official responses to possible irregularities in the account books. Payments will be linked to the size of the company and the complexities of the accounts one handles
It appears from the empanelment form that outsourcing of scrutiny of company records is allowed only to the members practising in individual capacity only. The partnership firms of CAs and their partners have been excluded, either inadvertently or by choice.
The working partners of CA firms should also be allowed to do this job.
It’s a welcome step taken by the MCA. Probably, the outcome of Satyam Episode has prompted MCA to think for the Scrutiny.
Now, before selection of professionals proper scrutiny of them must also be conducted, otherwise their Inspection Report would have to be further scutinised.
It is a very welcome move in favor of other profession like CWA & CS.
ICAI SHOULD TAKE BOLD STEPS, SO THAT TRANSPARENCY CAN BE CREATED AROUND THE GLOBE. INSTEAD OF BIG FOUR THE PEOPLE AROUND THE GLOBE SHOULD CALL THE ICAI(MEMBERS) TO CONDUCT THE AUDITS. ONCE THE IFRS
IS IMPLEMENTED AROUND THE GLOBE, I AM SURE THE HARD WORK OF CAS WOULD CREATE A GREAT DEMAND.
ICAI SHOULD ALSO MAKE SURE BEFORE ACCEPTING IFRS, THAT CAS SHOULD BE ABLE TO CONDUCT THE AUDITS AND MEMBERSHIP SHOULD BE RECIPROCAL AROUND THE GLOBE
AFTER 10 YEARS OF PASSING THE EXAM.
It is a good move by MCA to order for scrutiny of books of account of all registered companies. An inference that can be drawn from this mammoth exercise is; random scrutiny did not yield any results and could not prevent any frauds. It is unfortunate that audited books of account will be subject to inspection by firms of CAs/CWAs/CS etc. It may be a source of money for the members of these professional bodies, but the moot question is; what is going to be achieved out of this inspection. Assuming that after detailed inspection, if any fraud comes to light what kind of action will be initiated by MCA. Even though it is a welcome step by MCA, the adverse comments arising out of inspection will have debilitating effect on ICAI members whose conduct will come for scrutiny indirectly. The profession is under stress after Satyam episode and the members of ICAI have to gear up to meet new challenges.