The Week India – July 21, 2019

JULY 21, 2019 • THE WEEK 61

and pressures,” said Suresh Senapati,
former chief financial officer and
executive director of Wipro Ltd. “The
partner assigned to the audit plays a
critical role. His experience, knowl-
edge and ability to sniff out problems
is a key differentiator. A partner alone
does not ensure good audit. The
process the firm has defined for audit
and the systems it has built to ensure
that it is followed is the second
critical parameter. Both these factors
combined give the firm the ability to
deliver good quality audit.”
Equally important is an auditor's
ability to handle pressure from var-
ious quarters. “Corporate manage-
ments, in pursuit of short-term gains,
may use pressure effectively to make
a corporate misdeed stay undetect-
ed,” said Senapati.
The increase in the number
complaints against audit firms is a
reflection of the increase in corporate
misdeeds. Auditors are just one of
the many players in the corporate
ecosystem, along with promoters,
executive management, board of
directors, regulators, institutional
investors and the financial media.
“Audit firms play a supporting role
in the corporate world,” said Sen-
apati. “The increasing incidents of
mismanagement of audit firms is the
reflection of the prevailing business
environment. Where results are given
much more importance over the
process, often corporate misdeeds lie

hidden underneath.”

As the Companies Act, 2013,

brought in the concept of auditor

rotation, many large firms lost clients

they had been serving for years. In a

bid to maintain revenues, new clients

were acquired without enough

background checks. “Newer cases

are coming to the fore today, as audit

firms are on tenterhooks,” said Har-

ish Bijoor, founder of Harish Bijoor

Consults. The tightening of norms by

the Reserve Bank and the pressure it

puts on commercial banks to clean

their books are the main reasons for

this.

“While banks are required to carry

out due diligence before lending,

they place a lot of reliance on audited

financial statements and valuations

done by chartered accountants,”

said Salil Bhandari, founder and

managing partner of BGJC & Asso-

ciates LLP, a Delhi-based audit and

management consulting firm. “As

bad loans rose, questions were raised

on the credibility of audit reports.

Also, there has been strengthening of

reporting requirements, which has

resulted in huge data being available

to regulators for analysis and has

brought out inconsistencies.”

Corporates and companies have

many motives in concealing infor-

mation or providing false informa-

tion—to increase share price, attract

investors, obtain finances and avoid

taxes. And, mismanagement by audit

Banning big firms may

create a vacuum in the market.

Though there are scores of smaller

Indian firms, many of them do not

have the expertise to conduct

large-scale audits.