Aug 26, 2002 11:13 AM
20603 Views
(Updated Aug 26, 2002 02:55 PM)
ENRON, WorldCom, Xerox, United Airlines in the international scenario and UTI, TFL & MODI Xerox Corp in the Indian Case, there are these accounting & governance scandals coming up left right & centre. With all these accounting scandals being unearthed throughout the world, it has necessitated stricter guidelines for monitoring disclosure requirements & audit practices. The statutory auditors being caught by their neck, the internal auditors have managed to keep themselves behind the curtains. Somehow the internal auditors have got away Scot-free. In a lot of cases the internal & statutory auditors are the same firm. This is what happened with Enron. In the Indian scenario, law does not permit such a thing however there are firms whose main body does the statutory audit and an offspring does the internal. Now who is to be blamed is the big question.. whether the corporate , the statutory auditors or the internal auditors…I feel all have an equal share.
The Current Indian Scenario
There are various provisions in the law books providing for and regulating such matters.
MAOCARO requires a proper internal audit function in place for companies whose paid up capital is in excess of Rs.25 lakhs & the average turnover is in excess of Rs.2 crores. However such need not be an external body. The company may have its own internal audit department. In such a case it is management has complete onus to decide what are the areas that are to be taken up for audit even the reporting to the management, may be influenced by the management. Here lies a big question on independence of the internal audit team.
There must be sufficient coordination between the statutory auditors and the internal auditors of a company as is suggested in Standard Auditing Practices (SAP) issued by the ICAI. The statutory auditors may suggest certain areas to be taken up by the internal auditors The major audit issues should be discussed by the two bodies.
Corporate Governance procedures initiated by the Kumaramangalam Birla Committee report made various recommendation which have been implemented. It suggested the formation of an Audit committee which will consist of independent qualified members and the statutory auditors & internal auditors will be invitees to the meeting. Such committee will meet at regular intervals to discuss various audit issues , disclosure issues and thereby enhancing transperancy. Transperancy holds the key whether it is the financials of the company or the current cricket contracts controversy.
Better Later Than Never !
After whatever is happening for the past year with UTI, TFL etc the ICAI and other regulatory bodies are taking a few measures to curb things of such nature repeating. Various disclosure norms with regard to accounting standards have increased. In India only accounting standards upto 23 are mandatory out of the existing 28. In the international scene there are 40 odd standards that are mandatory out of a total of more than 140 whether it the IAS (International Accounting Standards) or the FASB ( Financial Accounting Standards Board) . India has a long way to go in this regard . An initiative in the right direction is being taken, for e.g.,
Ø The ICAI will now be doing a Peer Review so as to monitor the systems and procedures adopted by the auditors. Such assessment will be done by a panel consisting of qualified personnel. Suitable actions will be taken by the ICAI on this basis.
Ø The IIA ( Institute of Internal Auditors) has also formulated a few policies and recommendation for the conduct of Internal Audit & the suggestions have been made to the ICAI.
Ø The ICAI has constituted a Financial Report Review Panel (FRRP)which will look into the financial reports of the public companies and submit its findings to the ICAI on the basis of which disciplinary action will be taken.
For the initial steps this should do but there is no doubt that there are many more irregularities that will be unearthed in the near future.
What Else?
Ø In the US, the SEC has powers to debar auditors from auditing accounts of companies. However the SEBI in India has no such powers. The DCA which has a few powers in such matters has not exercised its powers yet but for the AFF case and the ICAI always backs its members. So there is no regulator for auditors. The SEBI like the SEC may be given such powers.
Ø In case of corporates , the consultancy /internal audit and statutory audit should be done by non related entities.
Ø All auditors of public companies have to compulsorily retire by rotation as is done in the case banks currently with a restriction on appointment of related auditors in their place. The next appointment has to be from the empanelled auditors.
Ø On the basis of the Peer review, the ICAI may earmark member auditors for the audit of public companies who may be appointed as auditors. Also, the rating agencies may come out with auditor ratings. These ratings will be confidential between the DCA, the ICAI , the auditor & the rating agency. This will curb any possible indirect publicity to the auditors and also help in empanelment.
God Help the Corporate world and the Investors!!
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Kindly excuse me coz this is not the perfect head to post this review.
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