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CAs should be able to call for a/c restatement
May, 25th 2009

Uttam Prakash Agarwal, president of Institute of Chartered Accountants of India (ICAI), has been in focus lately, handling queries on the role of auditors in the Satyam Computer fiasco. Agarwal, who is also chairing the six-member high-level committee set up by ICAI to look into the Satyam scandal, talked to Vivek Seal of DNA on a host of related issues. Excerpts:

What have you learnt from the Satyam chapter?
Satyam case is a failure of management. It is a fraud. It is not a failure of auditing and accounting system at all, let me put it on record. It is a failure of corporate governance, which is only there on paper, and it was the management which was executing it.
Don't you think corporate governance is connected to auditing at some level?

No, it is a totally different issue. Corporate governance says this should be the audit committee; then independent directors are there; so many compliances are there from Sebi and Income Tax. This is not a fraud of one year but of last five years. Why is it that no one raised any doubt in the last five years? If Raju would not have come forward with the confession, I think he would have continued with the fraud for a number of years.

There are so many people there, but one points a finger only at the auditors. What about the others?

So, auditors made a mistake?
Even after so many agencies working together, no one has been able to pinpoint what the failure was; none has given a conclusion yet.

The matter is still in progress because it has happened over a period of five years; in just three months, you cannot give a clear verdict.
Role of the auditors should also be explained here, many people still think that role of CA is to issue cheques and other business things.

But in real sense, accounts and financial statements are prepared by the management; the responsibility lies with them; auditor never writes the book of accounts. What we do is that we give our opinion; we do not give a certificate. We just say whether it is true and fair; we do not even say true and correct.

Suppose during the audit process we observe that there is a serious fraud. I have no right to charge the management or the company under any law. I simply write in my report that there was a fraud of this much amount; we only qualify, and that's it.

So do you want more powers now to deal with frauds?
Yes, after the Satyam case, we requested the corporate affairs ministry to give more powers to chartered accountants. If accounts are not up to the standard, I should have the right to tell you that you should restate your accounts. Now, even knowing that everything is wrong, we simply write four lines -- that accounts are not up to the mark.

We should have powers for restatement of accounts. My auditors should be more vigilant and not rely on management views. The restatement matter is in front of the corporate affairs ministry and the decision is expected soon --- they sound positive.

What are your views on the case related to Arthur Andersen, which was criminally charged in the US for its handling of the audit of Enron? Both the companies eventually closed their operations. Also, what are your views on the role of PricewaterhouseCooper in the Satyam issue?
We have no provisions here to ban them. What we do is give a licence to a member. We withdraw the licence if we find something wrong. That is our power. I have no power against them. I cannot do anything beyond the rules and regulations. This is not an association, and ICAI was set up by an Act of Parliament.

What if you have the power?
If I have the power, then I would be the first person to exercise it, whatever power I have, I exercised it in the Satyam case, including the interrogation of members outside of my disciplinary committee process.

Any development on your peer review plan?
In 2002, the council considered having a peer review system in ICAI and accordingly approved a statement on peer review, which defines and contains who the eligible firms are; who will be the reviewer; the training system; reporting; remuneration and constitution, etc. Through a process of peer review, an experienced reviewer will go and enhance the service quality of auditing and accounting.

Now, the issue is how to implement this. We have members who are conducting this, who have at least 10 years of experience. What they do is they monitor by reporting, documentation, training, compliance and implementation of technical standards through the peer review system. We have around 12,000 reviewers as of now, and after the Satyam case, this will increase the credibility of accounts.

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