Companies owned and controlled by Jignesh Shah saw frequent change in their respective statutory auditors in the last few years. While typically a rotation of auditors is looked upon as good corporate governance practice, recent controversies related to firms owned by Shah has cast a shadow on this frequent change in auditors.
MCX — the group’s flagship commodity futures exchange — had Deloitte Haskins & Sells as the statutory auditor between FY05 and FY09. However, between FY10 and FY12, statutory audit responsibilities were given to BSR & Co, only to be handed back to Deloitte for the financial year ended March 31, 2013.
Interestingly, last month Deloitte withdrew its audit report of Financial Technologies India Ltd (FTIL) in the wake of the NSEL crisis. MCX is one of the flagship companies of the Jignesh Shah group. “We followed the general practice of rotating auditors every three to five years. The irony is that if one does not rotate auditors, then questions are asked. If one does so, then also questions are being raised,” an MCX spokesperson said.
Meanwhile, Shah-promoted MCX Stock Exchange (MCX-SX) started with Mukesh P Shah & Co as auditor in FY08, before appointing BSR & Co for two years (FY09 & FY10). The last three financial years saw Chaturvedi & Shah as the statutory auditors of the exchange.
MCX-SX, on the other hand, clarified that since the capital structure of the company got changed in March 2010, Section 619B became applicable and, accordingly, CAG appointed auditors were required to audit the books of the exchange.
Experts say while a change in auditors is a good practice, it cannot be said that rotation alone ensures a high level of corporate governance. They say accountability plays the key role.
“Rotation of auditors can’t be looked in isolation... It has to be a combination of rotation and greater accountability and responsibility on the part of the partner (of the auditing firm). The partner shouldn’t be influenced by the promoter.” senior corporate lawyer HP Ranina said.
Debanik Basu of Institutional Investor Advisory Services, a proxy advisory firm, says that while “auditor rotation is a good practice, it shouldn’t be construed as a fool-proof check against misleading disclosures and accounting practices.”