ICAI PLANNING TO BAR FIRMS WHOSE PARTNER IS FOUND GUILTY OF AUDITING FRAUD OR NEGLIGENCE

The Indian accounting sector regulator wants the government to bring in a provision to bar tainted firms from taking up any new assignments for a specific period. The move by the Institute of Chartered Accountants of India (ICAI) is the latest in its undeclared but continuing tiff with the Big Four foreign accounting and audit firms that has escalated after the Satyam fraud. ICAI president Amarjit Chopra told FE that RBI, Sebi and the CAG should specify norms “barring such auditing firms for a particular time period whose partner has been found guilty in last three years.”

In 2009, S Gopalakrishnan and Srinivas Talluri, partners in Price Waterhouse, the statutory auditors for the scam-hit Satyam Computers, were imprisoned for alleged audit misconduct. The disciplinary committee of ICAI has also held Gopalakrishnan guilty of professional misconduct in the audit of erstwhile Global Trust Bank. Price Waterhouse is a related entity of PricewaterhouseCoopers, the global audit and accounting firm.

Chopra said, “At present, if a partner of a firm is held responsible in any fraud, the firm disassociates itself (from the partner) and later takes him as a consultant.”

This, Chopra said, “does not discourage auditors from professional misconduct.” Chopra further said the institute now has the power to take action only against the auditor and not the firm. But the institute is of the view that any of the auditors who ceases to be a partner of the firm and has been charged under disciplinary proceedings should not be allowed to undertake fresh work and therefore impose responsibility as if their status as a partner is still continuing. Chopra said they will also be discussing the concept of rotation of auditors in their next council meeting. Currently, only public sector banks are required to rotate auditors, appointed from among RBI-empaneled list of audit firms, but there is no compulsion on private banks and insurance companies to follow the practice.

ICAI has also requested the ministry of corporate affairs that the periodicity of rotation for an audit partner should be once in every three years, while for an audit firm it should be once every six years. At present, there is no such tab on the rotation of audit partner or audit firm under the Companies Act, 1956. Minister Salman Khurshid has recently told he preferred a rotation among the audit firms but without compromising on the development of domain knowledge by them.