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| A K Bhattacharya: Alacrity followed by stasis | | There is clearly the need for a strong independent regulator for accountants and auditors |
| A K Bhattacharya / New Delhi Jul 29, 2009, 00:44 IST |
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The Satyam scandal erupted a little more than six months ago. Even though it had already gone into election mode, the Manmohan Singh government showed remarkable alacrity and took charge of the situation. In about 100 days, the government-appointed board stabilised the operations of Satyam Computers and found for it a new buyer. In India, governments are notorious for their slow response to crises. This was an exception and credit must go to the government and the newly appointed board for preventing the crisis from becoming a calamity.
If that was a pleasant surprise, the expected happened with regard to the excruciatingly slow functioning of the law enforcement agencies and the judicial system. The accused in the Satyam scandal continue to remain in judicial custody and the trial is yet to begin. Even the chartered accountants, accused of having colluded with the disgraced Satyam promoter Ramalinga Raju, are still in judicial custody as the investigations have not yet been completed.
In the US, Bernard Madoff was arrested in December 2008 on charges of defrauding thousands of investors. The trial got over by end-June 2009 and soon thereafter the court sentenced Madoff to 150 years in prison. It took less than seven months for the US system to complete the trial of a person accused of a fraud and send him to jail. In the Indian system, we are yet to see the start of the trial in the Satyam case.
The irony is that no one in the government or the corporate world appears to be concerned over this long delay in completing the trial of India’s biggest financial scandal. The government also appears to be in a self-congratulatory mood in the mistaken belief that Satyam’s problems got over the day it found a buyer for the scandal-hit company. Nobody seems to be bothered that bringing the guilty to book expeditiously is also an equally important aspect of managing the fallout of the Satyam scandal.
Yes, the company, after its acquisition by Tech Mahindra, should now be in safe territory and can expect to come out of the woods. Most of its employees will also heave a sigh of relief realising that their company has narrowly averted a financial collapse. However, if the persons responsible for bringing the company close to that collapse are not handed out exemplary punishment and quickly, there will be no guarantee that such scandals will not erupt again.
Worse, amidst its celebration over finding a buyer for Satyam Computers in 100 days, the government has simply ignored the few regulatory flaws that came to light in the wake of the scandal. The Securities and Exchange Board of India came out with its quick-fix solution by forcing a peer audit review of the Sensex companies to ensure that at least the financial numbers of the top companies go through one more round of checking by independent auditors. But that was only a temporary solution.
There is clearly the need for a strong independent regulator, which can ensure that accountants and auditors do their job with responsibility. And if they don’t, the regulator should be empowered to take necessary steps to penalise the truant auditors. The way towards establishing a truly independent and strong regulator for the accountants and auditors is to redefine the role of the Institute of Chartered Accounts of India (ICAI). Let ICAI continue to be a body to represent the interests of accountants and auditors, decide the academic course content for accountancy and hold the examination for students to qualify as accountants. But the responsibility of regulating the professional conduct of practising accountants and auditors should be vested with a new body with necessary powers to penalise those who don’t follow the rule book.
An independent regulator for accountants and auditors can also ensure that they are sufficiently empowered to gain access to information before they certify accounts of companies they are auditing. At present, auditors have little power to force banks or other institutions to directly furnish the deposit and transaction details of the companies being audited by them. In most cases, such information comes to the auditors either with the help of the company or through them. Don’t forget that Satyam’s auditors were fooled by statements of deposits which apparently came from the banks but were routed to them through the company’s officials. Till such regulatory loopholes are plugged, there is no guarantee that another such scandal will not erupt again.
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