Auditors may get powers to refuse signing a company’s accounts if these are not found to be in order. A special group constituted by the Institute of Chartered Accountants of India (ICAI), the statutory body regulating the profession in India, is veering round to the view that the institute should push for statutory backing to such a move.
Company balance sheets could soon acquire a new look, with the government asking ICAI to suggest ways to strengthen reporting norms following Satyam Computer Services founder Ramalinga Raju’s shock confession to long-term financial fraud on January 7. ICAI sources said the mandate from the government was to ensure that company managements did not use notes to accounts as a cover-up for misdemeanours.
The special group will finalise the recommendations over the next few weeks and submit its report to the ministry of corporate affairs (MCA).
Currently, auditors may only qualify accounts if managements are unwilling to accept the discrepancies they point out. “If the law mandates that the management has to incorporate the effects of the qualifications, the situation will be completely different. This will also help us penalise auditors for lapses,” said an ICAI source privy to the discussions.
An auditor, who was not an ICAI office-bearer, said managements typically pushed auditors to be removed if they made strong qualifications to the accounts. Firms or their directors also often approach the ICAI’s disciplinary committee, seeking action against an auditor who has taken a tough stance on grounds the firm was being targeted or blackmailed, he added.
An MCA official involved with the process said the government would go by ICAI’s recommendations.
The ministry was also pushing for better coordination with regulatory agencies, such as the Securities and Exchange Board of India, to improve disclosures and reporting.
“Over the next few months you will see steps such as those initiated by the US after the Enron and Worldcom controversies,” another MCA official said.
Sebi has already announced its decision to opt for peer review and had asked company promoters to disclose details of pledged shares.
In addition, Sebi and its committees were discussing the role of independent directors. It has also talked of the fact that clause 49 of the listing agreement did not specify the role and responsibilities of these board members. The market regulator could step in with stiffer guidelines on these issues.