ICAI to check books of firms seeing director resignations

The Institute of Chartered Accountants of India (ICAI), the apex body to regulate the profession of chartered accountancy in India, plans to scrutinise the accounts of companies, which independent directors have quit in the last two months.

“This decision was taken in our Financial Review Reporting Board (FRRB) and it will depend on the situation under which independent directors would have quit,” said ICAI President Uttam Prakash Agarwal.

The decision comes in the backdrop of the Rs 7,000-crore fraud at Satyam Computer Services. Independent directors had quit the Hyderabad-based software services firm after a failed attempt to acquire two companies that were related to Satyam’s promoter, B Ramalinga Raju. Many independent directors in other firms had also resigned from their board positions in recent months.

“It is possible that the independent directors might have left on account of personal reasons or due to some other reasons, but if any director had left intentionally and was aware of any wrongdoing, then the matter would be reported to the regulator concerned,” added Agarwal.

The FRRB has also decided to review 100 companies for the financial year 2007-08, along with completion of the review of 64 pending cases. The board randomly selects listed companies and scrutinises the auditors’ report to check whether the prescribed procedures were followed. Based on their finding, the FRRB is entrusted with powers to take suo motu action against the auditor.

In order to expedite the reviewing process, the ICAI has proposed to form 20 Financial Reporting Review Groups in 2009-10. Further, the institute is setting up another review board that will cover unlisted firms, including state-owned companies.