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ET EDIT-Rupture in India’s Accounting History PwC’s quitting as auditor signals a new chapter

June 14, 2019 05:36 AM


Rupture in India’s Accounting History
PwC’s quitting as auditor signals a new chapter
The move by Price Waterhouse & Co (PwC) to quit as auditors of two Anil Ambani group companies, on account of absent satisfactory response to queries, marks a rupture in India’s corporate history. Audit firms had little practical choice but to go along with company managements’ version of accounting truth. Deloitte’s fate post-IL&FS makes it clear that audit firms now have little practical leeway to endorse any putatively varnished version of the truth. Their job is to ensure that the financial statements give a true and fair view of the company and that the monies raised by the company are finally used for the purpose for which these had been raised. Audit committees must notice, and seek explanation for, any diversion of funds. The point is investor protection calls for accounting data that can be taken for granted.

Audit firms are paid for by the companies they audit, true, but their job is not to carry out the company management’s bidding. Rightly, the Companies Act defines the role, rights and duties of auditors to ensure that they maintain integrity and independence of the audit process. So, the resignation of an audit firm ahead of the expiry of the term is a cause for worry. Sebi, based on the recommendations of the Uday Kotak Committee on Corporate Governance, has mandated companies to disclose the reasons for the resignation of audit firms. The panel also held that audit firms should be encouraged to truthfully disclose the reasons for their resignation, seeing this disclosure as a part of their fiduciary responsibility towards the shareholders. This is welcome.

Lapses in audit are unacceptable, given that auditors are gatekeepers of corporate governance. At the same time, corporate accounting transparency and governance are an integral part of overall systemic integrity. If managements need to pay off corrupt netas and babus to be allowed to do business, they have to generate funds off the books to do so. It is necessary to clean up political funding and make it transparent, while demanding integrity of the audit process and corporate governance

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