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Audit firms may also face action in Satyam-like cases
July, 25th 2011

New Companies Bill to propose equal responsibility of auditors, firms. Unlike in the multi-crore Satyam fraud, audit firms will not be able to wash their hands of corporate scams perpetrated by companies in connivance with their partner auditors.

The Companies Bill, 2011, being finalised by the Ministry of Corporate Affairs (MCA), would seek to make audit firms and auditors equally responsible for such wrongdoing, said a senior official.

MCA had assured a parliamentary panel that looked into an earlier version of the Bill that it would ensure that audit firms did not escape by putting the blame on auditors.

The need for such a clause was felt after B Ramalinga Raju, founder of the erstwhile Satyam Computer Services, admitted to having cooked the companys account books to show non-existent profits. The fraud was estimated to be of the order of Rs 10,000 crore.

While Satyams auditors chartered accountants who were partners of associate audit firms of global consultancy PricewaterhouseCoopers were arrested for alleged collusion with the management, the audit firms were left untouched.

Under the current law, besides criminal proceedings, the Institute of Chartered Accountants of India (ICAI) can bar the guilty auditors from doing auditing work for a specified period.

Under the ICAI Act, members found guilty of professional misconduct can be barred from practice for up to five years or fined up to Rs 5 lakh. However, no action could be taken against the firms, either under the ICAI Act or the Companies Act.

ICAI is conducting disciplinary proceedings against two PriceWaterhouse auditors, Srinivas Talluri and S Gopalakrishnan, for erroneous auditing of Satyams books.

The Bill would propose that if the audit partner or partners were proved to have acted in a fraudulent manner or abetted or colluded in any fraud by the company, its directors or officers, the audit firms would be equally liable for civil or criminal proceedings.

The parliamentary panel welcomed the stringent proposals.

The Companies Bill, 2011, would also propose a maximum of 10 years imprisonment, besides a fine of up to three times the amount involved in the fraud, for the guilty auditors.

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