Indias apex audit and accounting body wants more regulatory powers to prevent frauds such as the one perpetrated by B. Ramalinga Raju, the founder of Satyam Computer Services Ltd.
The Institute of Chartered Accountants of India (Icai), in a report to the ministry of corporate affairs (MCA), has asked that its committees be given the power to summon witnesses and ask for production of records of companies when it is investigating corporate and accounting frauds perpetrated by audit firms.
Icai has also suggested that it be given powers to investigate companies where it has observed continued transgressions.
And it has suggested that the behaviour of rating agencies and equity analysts be regulated more stringently by the government.
In the high-powered committee report, the institute (Icai) has requested MCA to give additional powers to it (the institute) so that it can play a better role of a regulator, said Amarjit Chopra, president of Icai.
The institute currently has powers to only investigate the role of auditors in cases of corporate frauds.
Icais report to MCA was prepared in the aftermath of the events at Satyam, when Raju confessed in January 2009 to having misstated accounts to the tune of Rs7,136 crore over a period of several years.
The government had asked Icai to look into auditing lapses at Satyam.
In its report, Icai has also asked for better regulation of credit rating agencies, which, Chopra said, played an important role in enhancing the profile of a firm.
Nobody questions the rating agencies when they suddenly change the rating of a companys financial instrument without actually going into the details of the companys performance, which may mislead investors, he added.
Credit rating agencies do not agree with that recommendation.
Naresh Takkar, managing director of credit rating agency Icra Ltd, said: Credit rating agencies are already regulated by the Securities and Exchange Board of India (Sebi) and the Reserve Bank, so I dont know what Icai is talking about. I have not read the report, so I will not be able to comment on it.
Madan Sabnavis, chief economist at CARE Ratings, said: Recently, Sebi came out with guidelines suggesting better disclosures and transparency by credit rating agencies, which are in lines with global practices, so I dont think the government needs to get more stringent while regulating the rating agencies.
A 3 May circular by Sebi asked for better record-keeping by credit rating agencies for the financial instruments rated by them. The records should be made available to auditors and regulating bodies when required, it said.
Chopra also said the Reserve Bank of India should play a bigger role in the appointment of auditors in a company.
The report, which was prepared by a team headed by former president of Icai, Uttam Prakash Agarwal, was presented before the Icai council on 4 February and then submitted to MCA in May.
MCA is looking into the report. As of now, nothing can be said if the recommendations of Icai will be accepted, said a senior official at MCA, who did not want to be identified.