Editorial
The Satyam fraud has rocked not just the entire Indian
corporate world, but has had its echoes worldwide. It has raised various issues
regarding the role of independent directors and auditors. Our profession, so far
seen as having a low profile, is the subject matter of heated discussion in the
media as well as in the corporate world. In the public perception, the rating of
our profession has touched new lows. Though all the facts relating to the fraud
are not yet fully out in the open (and the trial by the media does seem
premature), the fundamental issues raised by the very revelation of the fraud
cannot be swept under the carpet, and must be tackled head-on by our profession.
We need to do a significant amount of soul-searching, if we desire the
profession to retain the esteem that it has justifiably been held in so far.
Did the auditors follow the prescribed auditing and assurance
standards ? If so, are the auditing and assurance standards in need of
revision ? Advances in computer imaging technology have facilitated forgery. In
that light, do our auditing procedures need any change ? Are we laying too much
stress on adherence to standard procedures leaving no room for exercise of
judgment ? Are the auditing and assurance standards in existence only on paper
or are they being generally adhered to by the profession ?
If the auditing and assurance standards were not followed,
the concerned chartered accountants should certainly be taken to task. Given the
magnitude of this fraud, and its worldwide implications, it was imperative that
not only should action have been taken but that it should be seen to have been
taken swiftly and after a thorough enquiry. It appears that the Institute is
restrained from acting swiftly by its rules and regulations. Further, it seems
that the Institute, which grants the right to use a firm name, does not have the
powers to bring to task an errant firm, if its partners act in a manner contrary
to the prescribed procedures. The Institute is bound by the laws and rules and
regulations framed by the Government. Should the Government not remove the
fetters of the Institute by amending the laws and regulations governing it, so
that it can function more efficiently and effectively ?
The public expectations from an audit that it should be
capable of detecting any significant fraud, should provide warning signs of
collapse, etc., are quite different from what a statutory audit can really do on
account of the fact that there are inherent limitations in an audit. Have public
expectations from audit been raised to an unduly high level, to justify the
higher audit fees being charged ? If so, is the profession itself guilty of
misselling its services ?
Is it that the system of declaration of quarterly results by
listed companies, within one month of the end of the quarter, does not provide
enough time to carry out a proper and meaningful audit following all audit
procedures ? The audit of Satyam’s annual accounts was completed within 21 days
of the year end. Are we capable of resisting management pressures to declare
audited results within a short time span of the end of the accounting period ?
Are unethical practices seeping in our profession,
threatening the very existence of the profession ? If so, is our profession
taking any significant or meaningful measures to arrest such practices ? Is our
disciplinary mechanism strong and fast enough to act as a deterrent to corrupt
practices ? What other measures should be taken to tackle corrupt practices by
members ?
Is it that the auditors are being made a scapegoat for acts
done by the promoter in connivance with politicians, by twisting the facts in a
so-called confession ? If so, should attempts not be made by the profession to
bring the true facts out in the open at the earliest, so as to expose the
businessman-politician nexus ?
Is independence of auditors impaired by the fact that their
appointment and remuneration are de facto controlled by the management ? Should
appointment and fixation of remuneration of auditors be done by an independent
body ? Does consulting for an auditee affect the independence of an auditor ?
Should there be rotation of auditors every three years or every five years ? Or
should there be compulsory rotation of audit partners ? Should all companies
above a particular size have joint auditors ?
All these and many more issues can no longer be ignored or
brushed aside if we wish to continue to be members of a respected profession.
The Satyam episode should act as a warning to all of us that as a profession, we
have to act and act quickly, decisively and dispassionately in addressing all
these issues. While doing so, the public also needs to be made aware of such
measures taken, so that the confidence of the public, on which the very
existence of our profession is based, is restored and retained.
Gautam Nayak
