As I write this editorial, the results of the referendum in UK are out. By a small majority, the country has voted for an exit from the European Union (EU). The difference in the manner in which various parts of the United Kingdom voted was a revelation. To majority of the stakeholders, their expectations from the EU were not fulfilled while others expected that remaining with EU would be to their long-term benefit. Life is full of expectations but these are different for each individual. This leads one to either clamour for change or resist it.
The expectations from our profession have ben manifold and are ever increasing. The role of Chartered Accountants has seen a complete metamorphosis in a century. From being mere bookkeepers, we have now become consultants who advise on complex business strategies. As our role has increased so have the expectations. Keeping this in mind, we at the Society have kept the theme for this special issue of the journal as “Expectations from the profession”.
While, as chartered accountants, we play various roles, our niche area is that of audit. When businesses were small, in a majority of the cases there was complete identity between the management and the ownership. Consequently, the assurance that was required from the auditor was limited. As businesses became more complex, the number of stakeholders underwent a continuous increment. Today, the financial statements authenticated by auditors are relied on by investors from the public, lending banks and financial institutions, regulators and tax gatherers. The expectations of all these stakeholders are different, distinct and at times contradictory.
In order to cater to all the different expectations, audits have also been divided into different categories. A statutory audit assures the reader that the financial statements depict a true and fair view, an internal auditor reports on various areas of interest to the management, while a forensic audit seeks to detect fraud where the management or appointing authority suspects one. Unfortunately, neither can these roles be divided into straitjacket compartments, nor is the distinction understood by various stakeholders. This is the challenge that the profession has to meet. In fact, various changes in the reporting requirements under various statutes have increased the responsibilities of an auditor manifold. Apart from various amendments to CARO, an auditor is now required to comment on the adequacy or otherwise of internal financial controls. It is expected that once an amendment to the tax audit report is notified, the tax auditor may have to comment on compliance with Income Computation and Disclosure Standards (ICDS) as well.
One can often sympathise with the auditor as he strives to meet these different and often contradictory expectations. The management expects the financial statements to be drawn up in a manner that the investor is happy to remain invested and the lender is willing to lend. The investor expects that the statements are true and reflect the actual position (and possibly indicate what will happen in future) and expects the auditor to warn him of aberrations, if any. The public expects that the accounts are free from fraud / error and sees the auditor as a whistle blower, while the taxman expects the audited statements and the report thereon to reflect all the data required for computation of income.
While our profession is expected to meet all the expectations from the stakeholders which I have discussed above, it has two other challenges to overcome. The first is to convince the business houses to maintain that level of documentation which will enable the auditor to establish that he has done his duty properly. The second is to ensure that while doing his duty he maintains his independence and reports fearlessly. Although the statutes which deal with the reporting requirements, as well as the regulators do give him some support, that may not necessarily be adequate.
Apart from the role of an auditor in different forms, businesses expect a chartered accountant to perform an advisory function. On account of the expertise that he possesses, his advice in regard to conduct of business, mergers, acquisitions and restructuring thereof, as well as financial planning is extremely valuable. In this special issue, Akeel Master and Gaurish Divekar deal with the distinct expectations from statutory, internal and forensic audits, Chetan Dalal examines the role of forensic audits, while Dinesh Kanabar discusses the role of a chartered accountant as an advisor. I am grateful to these eminent chartered accountants for having authored these articles despite their busy schedules.
I hope that these articles will make interesting reading.
