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Forged audits at SMEs; ICAI tracks spread
June, 23rd 2010

The Institute of Chartered Accountants of India (ICAI) has unearthed cases of financial statements and audit reports of certain companies with forged signatures of auditors, sparking off fear of a larger menace that may have hit the countrys auditing fraternity.

At a time when the government is going all out to set right the audit profession, cases of forged audit reports have put the regulator on the defensive.

The cases reported so far relate to forged signatures and misuse of the seal of chartered accountants in annual accounts and tax audit reports of companies, said an ICAI official. ICAI is the countrys apex body looking into the functioning of auditors. While the cases include names of small and mid-level firms, the regulator is exploring chances of a larger spread of the forgery network.

The cases, though limited in number, have raised doubts over authenticity of financial reports, the official said, requesting anonymity. However, he refused to share details of the firms whose name and seal have been compromised due to the scam.

A special group has been constituted to look into the cases and suggest measures that can effectively handle such fraudulent practices. The matter, which was also discussed at the institutes council meeting, has highlighted the need for stringent action against those found guilty.

The law provides for penalty for a person who falsely represents himself as a member of the ICAI. The council has proposed imprisonment of up to five years for any person found guilty of such a practice, said the official.

The regulator is also planning to expand its random scrutiny for company audit statements in order to find out the veracity of the statements. The ICAI already has in place the process of random checks of financial statements of companies.

The ministry of corporate affairs, which is the administrative ministry for the ICAI, is mulling extensive reforms to bring more transparency in the auditing process and make auditors more accountable for their work.

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