With a considerable amount of time in the last week spent on reading and reading about corporate accounting frauds, its with a great shock that I come to realise how risky the environment has become for an Auditor. As a representative from that field itself, I would very well say that an Auditor is always haunted by the Ghost of his past. Though as Auditors, we might be well versed and well backed up with all the relevant and necessary points related to the numbers of the company,we still are far left in the lurch when it comes to Internal control systems.
India is gliding in the path of increasing Foreign fund inflows and rapid integration with the global economy ,both in terms of actual trade and also in terms of its financial reporting framework. In such a scenario, one would expect the regulators to tighten up the Law,thus bringing in more accountability and transparency in the operations and also the finances of any business entity. And there we got the new provisions related to Corporate Governance.
“Corporate Governance” brought in a chilly breeze of much-needed reforms in the areas of conflict of interest, stringent disclosure requirements and also pulled the plug on the possibility of retaining auditors. Is it enough for a country like India? Is it enough for an emerging economy which is doing pretty well ,thanks to the tight hold by the RBI and others?
I would say a strong NO to the above questions. Changing Auditors or increasing the mandatory disclosure requirements is not going to go to the roots of the issues. I frankly am shocked to note that nothing has been said on the importance of a strong Internal control systems in business entities and also a whistle-blower protection mechanism covering all the spheres of trade and commerce ( i.e.., not just public sector).
In an era where almost 3/4th of the corporate accounting frauds have taken place due to internal and intentional actions and collusion among the top management level, its highly recommended that some standards or benchmarks be set for the internal control systems in an entity. As we might know, even a very small and immaterial irregularity , when compounded numerous times , could lead to a huge, venomous scandal. As auditors, we would need to ensure that the entity has strong systems in place rather than merely certifying the numbers. Additionally, we must really have a strong and reasonable opinion on what is material and immaterial with respect to the financials and the operational process. As watchdogs, we are not supposed to compromise on that.
Lets sincerely hope that the recently introduced provisions on Corporate Governance are made more comprehensive and that it goes all the way down to the rock bottom of the iceberg. And its our duty to see to it that the World never sees another WorldCom or Satyam ever again.