The government is likely to examine a proposal to mandate listed companies to appoint more than one audit firm in the wake of the Satyam accounting fraud which has adversely affected the image of Corporate India.
In addition, stock market regulator Securities and Exchange Board of India (Sebi) may also be asked to appoint audit firms on behalf of the companies to ensure independence of the auditor.
Several loopholes pertaining to accounting standards followed in the country have come to light after B Ramalinga Raju, co-founder and deposed chairman of Satyam Computer Services, admitted to be doctoring the books of the IT firm.
Embarrassed regulators and policy-makers have moved fast to overhaul rules and procedures so that holes are plugged and corporate policing is strengthened.
“A proposal to this effect has already been sent and we hope that it is considered favourably as this is extremely important to ensure that such frauds do not occur in the future,” said BC Jain, member of the Quality Review Board under the Ministry of Company Affairs. The QRB is an independent body under the ministry of company affairs.
While it pushes new measures, Sebi and the government may be forced to mandate the listed companies to rotate their auditors, a practice currently being followed by public sector enterprises. This is believed to reduce irregularities that could be helped by entrenched auditors in collusion with company managers.
Manoj Kumar, managing partner at law firm Hammurabi and Solomon, told Hindustan Times that appointment of more than one audit firm would help in reducing frauds.
“However, a mechanism for double checking is already present in the form of internal auditors,” he said, adding that defining of roles and accountability must be made clearer.