Mar 27, 2002 01:06 PM
13235 Views
(Updated Mar 27, 2002 01:06 PM)
Well this would come as a surprise to most of you.
It is believed that Chartered Accountants (or auditors) are caretakers of the shareholders. Well, let me tell you that that is the stupidest of all beliefs. The fact is that auditors are the caretakers of the management. Anybody disagrees, please read the Enron - Andersen story. It will explain what I mean.
Do you want to know why? Technically shareholders appoint auditors. But actually (or rather practically) its the management who decides the auditors. And who has the right to remove them? Technically its the shareholders again, but actually its the management. So would anyone bite the hand of your 'bread-giver' (if there is no such word than I may be credited with it).
The auditor is supposed to just certify that the Profit and Loss Account and the Balance Sheet are true and fair. He does not certify that it is correct and accurate. He just looks into a lot of records and checks that all accounting conventions/standards are followed. But he can never (except in very few and blatant circumstances) find any fraud or misrepresentation done by the management. Even if he finds he cannot dare to report them to the shareholders, as then he might invariably find another client ot audit.
So all you people out there, please dont place any reliance on the audit report and also dont get carried away by big names. Even Anderson does what our next door Shah or Desai does.
Where does that leave the financial analysts? Nowhere. They analyses accounts prepared by management as the management wants it to be. Hence the analysis always ends up the way management wants it to be.
What can you or me do about it. Well to be true and frank, nothing. Maybe we can wait for things to change for the better, what with peer review, auditors to be appointed by government from a panel, circulation of auditors every five years, etc. doing the rounds of discussion.
