In the aftermath of the Satyam fiasco, like in any other scam, questions are raised about how to avoid one the next time. In this backdrop, chief financial officers and experts reckon that changing the auditor every four years, as is an international practice, could be the way out. M Damo-daran, former Sebi chief, in a column in FE had also propounded a similar idea.
CFOs that FE spoke with opine that regular auditing of the management systems, joint auditing by an MNC as well as a domestic auditor, and even rotating the CFO are some of the steps that will go a long way in bringing about more credibility to financial accounting.
Seshagiri Rao MVS, CFO, JSW Steel, says companies should be willing to disclose whatever additional information investors would seek from them quickly. Also, with most companies having an integrated enterprise management system in place, regular auditing of those systems is essential to make them tamper-proof. “Companies could also practice rotation of auditors, as is done overseas. Now, auditors can continue for any number of years provided they have the shareholders’ approval. One way is to change this and rotate the auditor every four years,” he said. Firms need to create more checks & balances in their financial systems, Rao added.
However, Vishesh Chandiok, national managing partner, Grant Thornton, does not subscribe to the idea of frequently changing the auditors. He says rotating auditors can “destroy the quality of the audit”. “What is needed is steps to enhance audit quality, like putting in place an independent review of audit firms,” he says. For this, the Quality Review Board has its task cut out, he said.
“Companies should look at rotating the CFO every two years,” says Prabal Banerjee, group CFO of the Hinduja Group. With this, the CFO also gets an opportunity to gather knowledge and experience on other critical functions of the organisation as well, he adds. Other than rotating the auditor every two years, Banerjee puts forward measures like joint auditing, introducing the concept of auditing by the government or the Company Law Board, and ensuring internal audits are done by an outside firm (outsourced), with the clause that the firm concerned has not been the company’s external auditor in the last three years.
Moreover, says Banerjee, independent directors should not be invited from the academic circles. “How can a professor from a reputed institute know what is going on inside the company? It would be better to have people with some knowledge of the way the company functions,” says he. Also, the appointment of independent directors should be strictly by non-promoter shareholders to ensure these things are not done out of favour, he adds.
Chandiok says that in the present case, it is important that the government acts quick so that India can send a message to investors that the country is second to none in respect of regulatory systems. “If the US regulators get into the act quicker than the Indian government, it will have a negative impact on the way the Indian regulatory system is perceived,” he adds.
[Source: The Financial Express]
