Amend listing norms to wield stick against audit firms, says ICAI
January, 27th 2009
Faced with criticism that its disciplinary machinery is only focused on errant members and not on the firm that they represent, the auditing profession regulator Institute of Chartered Accountants of India (ICAI) has trained the gun on audit firms now.
The ICAI has written to the Securities and Exchange Board of India suggesting that the listing agreement be amended so as to require a listed entity to give an undertaking that it would not appoint any firm as auditors whose partners have been found guilty of professional misconduct and awarded punishment under the ICAIs disciplinary mechanism.
We feel this will be a good deterrent. It will send a strong signal. Audit firms will put in process steps to ensure that the partners strictly comply with auditing standards and not indulge in any fraudulent activities. If any partner is found guilty and punishment is awarded, then the entire firm will have to bear the brunt of it as it cannot audit any listed entity in India, Mr Ved Jain, ICAI President, told Business Line.
Even though it is not mandatory for the capital markets regulator to implement the suggestion, Mr Jain said that the ICAI would persuade SEBI to bring about these changes to the listing agreement.
Meanwhile, on the question of whether an audit firm would stand eligible for being appointed as statutory auditor if its tainted partners were to go in an appeal to the High Court against the ICAIs disciplinary action, legal experts contend that it would be eligible. A judgment is not operative if an appeal has been filed against it and stay has been granted. So, in such a situation, the audit firm would be eligible for appointment, sources said.
ICAI has also written letters to the RBI, the Comptroller and Auditor-General of India (CAG) and IRDA stating that audit firms whose partners have been found guilty for professional misconduct should not be eligible for statutory audit work in the sectors overseen by them.