The new Companies Bill could contain a provision that will make auditors compensate retail investors in cases of corporate fraud, a measure aimed at bringing in more accountability into audit profession. In a representation made before the parliamentary standing committee on finance, the ministry of corporate affairs has suggested several such measures to restore investors’ confidence, affected by the alleged involvement of auditors in the Satyam scam.
The final version of the bill could also contain a provision empowering regulators to initiate civil and criminal action against auditors/ audit firms, if they are found to be a part of a fraud committed by any company.
The government is also looking to set up an independent body to oversee the quality of audit in the country. The body, being conceived on the lines of the Public Company Accounting Oversight Board in the US, will cut into the authority of the Institute of Chartered Accountants of India (ICAI). The ICAI has opposed the creation of this new body, which is seen as the government’s lack of faith in ICAI.
While the idea behind the proposal is to raise the accountability of auditors and imbibe greater reliability in corporate accounts, the move is likely to be supplemented with greater authority to auditors to verify financial details provided by companies.
A suggestion in this regard has been made by the parliamentary standing committee, which seeks to give auditors access to financial records of the subsidiaries of companies, which are outside India, and financial data on their transactions “The idea is to draw a balance between accountability and authority. Auditors will be given greater authority to do their work,” said an official in the ministry of corporate affairs.