No lessons learnt from Arthur Andersen scandal

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New Delhi: audit of a listed company should be rotated every five years. Stressing on the need for greater monitoring of auditors, Srinivas Kotni, managing associate at Corporate Lexport said, “It will be worthwhile to have specific provisions on rotation of auditors. The role of tax auditors and internal auditors can be made rotational.”

Apart from rotation of audit partners, the panel had also called for an annual certification by the audit firm to the audit committee or to the board of directors of the client company stating that it is independent and has an arm’s length relationship with the client.

Significantly, it had also suggested setting up of independent quality review boards (QRBs) for the Institute of Chartered Accountants of India, Institute of Company Secretaries of India and the Institute of Cost and Works Accountants of India. The QRBs would “review the quality of audit, secretarial and cost accounting firms, and pass judgement and comments on the quality and sufficiency of systems, infrastructure and practices.”

Monitoring the monitor

• The department of company affairs had set up a committee under former Cabinet secretary Naresh Chandra to revisit existing norms for corporate governance and audit firms

• The panel had stressed the need for greater regulation of auditors, including compulsorily rotating audit partners every five years

• The Centre ignore a large part of the Chandra panel’s recommendations in the Companies Amendment Bill of 2003, but also in the much-touted New Companies Bill of 2008, these thorny issues have been conveniently skipped

• The committee had suggested that the partners and at least 50% of the engagement team responsible for the audit of a listed company should be rotated every five years