ICAI asks govt to stop giving projects to tainted audit firms
July, 13th 2010
Accounting regulator ICAI has asked the government to stop giving assignments to tainted audit firms, a move that would discourage wrong doings and promote entities with honest track records.
The Institute of Chartered Accountants of India (ICAI) has mooted this suggestion in its final high powered committee report on Satyam submitted to the corporate affairs ministry.
"The government may not entrust any government assignment to firms whose partners or staff have been found guilty of serious charges of misconduct," ICAI has said in its report.
As per the current arrangement, country's official auditor Comptroller and Auditor General (CAG) appoints statutory auditor for public sector companies on its behalf, while for internal audit PSUs appoint their own employees or outsource work to a firm of their choice.
"The government should blacklist the firm which has committed any serious breach in public interest entities. If government gives assignments to erring audit firms, it will set a wrong precedent," a source in the ICAI said.
Interestingly, while the institute has the power to punish and penalise chartered accountants, it cannot take any action against erring audit firms. The ICAI has also sought amendments in the Chartered Accountant Act to be empowered to punish audit firms whose partners are involved in accounting frauds.
The ICAI was prepared after investigations and studying auditing loopholes in the Rs 10,000-crore accounting fraud at once IT giant Satyam Computer Services perpetrated and was brought to light by founder B Ramalinga Raju in January 2009.
Besides, the ICAI has recommended tighter regulations for credit rating agencies to make it more transparent and code of conduct for investment bankers and financial analysts.
The accounting regulator has also suggested that listed companies should give details of their bank balances and loans and advances to their auditors and same practice should be followed by banks.
"The RBI as part of strengthening the credit monetary policy of the bank, may direct the bank to review diligently borrowers' financial statement submitted for availing loan facility," ICAI said.
Further, it said that for better corporate governance in corporates, the government should consider a whistle blower policy for public interest entities.
The recommendations, which are at present under the consideration of the Corporate Affairs Ministry, if implemented, would give the ICAI more teeth to deal with accounting frauds in future.