Following the Satyam accounting fraud where the role of one of the top auditing firm Price Waterhouse has come under cloud, the Institute of Chartered Acountants of India (ICAI) is working on a proposal to draw a negative list of auditing firms and their partners.
Any auditing firm or its partners found guilty of any improper accounting practice would find a place in the proposed negative list, which would serve as a ready reckoner for firms, markets and the Securities and Exchange Board of India (Sebi).
According to Ved Jain, president, ICAI, the move towards this proposal was prompted in the aftermath of the Satyam accounting fraud, which is the first and biggest in India so far so as to earn the sobriquet of the infamous Enron case in the US. ?ICAI has decided to cancel the licence of those auditors who are found to be involved in this fraud. But the problem does not end here?.
Jain said ICAI?s effort is to ensure that even if an auditor involved in any scandal is sacked by the firm, is no guarantee that the improper practice by the firm would come to an end. One way the auditing firms could adopt is to change its partners, which is also not a foolproof system.
According to Jain the auditing firms would keep bringing in partners after partners and dismiss them if they are found guilty and in the process keep profiteering as they would keep getting business.
To plug this systemic problem, ICAI has decided to draw up a list of all those auditing firms whose partners have been caught doing fraud. All listed companies may then use this list as a ready reckoner before hiring the firms.
To strengthen the system further, Jain said that it would be mandatory for all listed firms to seek ICAI?s approval before they hire any auditing firm. The ones against whom any kind of disciplinary action has been taken would not be allowed to practise.
Jain said a final solution to the problem cannot come until some kind of exemplary and expeditious action is taken and this would be the right solution to avoid such kind of auditing frauds from happening in future.