Auditor’s auditing
THE FALL GUY
I have no soft corners for auditors, although I am a Chartered Accountant [CA] by profession. I believe that every financial scandal does have an accounting mind behind it. That said, I am unwilling to buy the argument that the reason is that of the statutory auditor.
“What were the auditors doing?” is the natural first question. To pour scorn at the audit report is to ignore the fact of the auditor working under certain conditions and environment. Remember, these men aren’t hanging around there full time, and some of the shenanigans are such that they cannot be spotted by traditional audit.
Story Satyam…
Take Satyam as an example. It was an out and out fraud, which no regular audit could have figured out because every piece of evidence was coloured. Of course, we can be wise after the event and ask why this was done and why that wasn’t carried out. Remember, a statutory auditor doesn’t walk through a company’s doors imagining that his client is a crook. He trusts him, although he verifies. If there is no extraordinary evidence to doubt his trust, he goes with the client’s words in quite a few cases. Period.
Do not get me wrong. I am not holding a torch for the auditor. I agree that as the paying public, you have a right to ask and feel indignant at the happenings in Satyam, PMC, LVB, HDIL, and DHFL, which were outright frauds. Why even that holiest of holy cows, Franklin Templeton, reeked of crime. Technology does help the auditor big time. It also gives the fraudster that much more scope to perpetrate a fraud. The solution lies in catching hold of the perpetrator by the scruff of his neck and hanging him figuratively by the nearest barge pole.
auditor accountability
Hold the auditor accountable if there is a case of gross negligence. Like with the medical profession, only those who have carried out audits can understand oversight in as much as only doctor can figure out if another was at fault. The auditor historically is a watchdog, though of late, he is expected to be a bloodhound.
On his part, the CA must remain independent. A lot has to do with how he projects himself as being chummy with management. The competition in the audit profession is also a cause for this. The CA must possess integrity, objectivity and professional scepticism, all of which are prerequisites to independence. He must self assess if his position will be compromised, whether the law says so or not. Caser’s wife should be above suspicion.
rbi’s role
The RBI’s new audit norms have created a buzz in the financial circles. It has stitched the loose ends by bringing the rules at the network firm level. Several audit firms team up to form a network, and now the RBI has gone on record saying those who are part of the network will also be assumed to be compromised. Recommendations like mandatory joint audit norms, audit capping and lowered tenor are just what the doctor ordered.
At a broader level, Indian companies must come out of this belligerence to go just with the Big-4. Every audit has confirmed that while they may have better access to knowledge and audit tools, they have often been taken through the garden path. Government appointee CEOs should stop feeling that if an Indian firm audits and something goes wrong, the CBI will place the mill around the CEO’s neck and wonder how much money changed hand. By no stretch of the imagination am I canvassing against the so-called ‘MNC’ firms – after all, they are all run by Indians – but the claim of a chasm between them and the others must go.
People will follow traffic rules if cops catch the violators without fear or favour. Cameras have taken over that job. And if there is punitive punishment unmindful of who jumps the signal or drives rash, the fear of law will be there among the citizens and people will fall in line. The same holds good for fraudsters. The auditor cannot be the fall guy.
