Satyam fraud not an accounting failure: ICAI

The Satyam scam was not an accounting or auditing failure, but one of corporate governance, said Amarjit Chopra, president, Institute of Chartered Accountants of India (ICAI).

Speaking on the sidelines of an international taxation conference here on Monday, Chopra said, “There were promoter shareholders, executive directors and directors, and the auditors were the last rung. On the other side, there were independent directors, one of whom was a dean of the Indian School of Business, but nobody questions the role of independent directors.” Chopra also wanted the government to look at the role played by independent directors, saying one worthwhile suggestion by them could prevent such frauds.

Chopra, however, conceded that chartered accountants too, should be more active to be seen as preventors, rather than facilitators of corruption. The objective of the profession is to reduce corruption, he added.

ICAI, the regulatory body of chartered accountancy in the country, had reportedly found two PriceWaterhouse auditors, S Gopalakrishnan and Talluri Srinivas, prima facie guilty of professional misconduct. PriceWaterhouse was Satyam’s statutory auditor when the company's founder, B Ramalinga Raju, confessed to a massive accounting fraud in January 2009.

The Central Bureau of Investigation, which investigated the Satyam fraud case, also charged the two auditors with “complicity in the commission” of the fraud by “consciously overlooking the accounting irregularities”.

In the last three years, the ICAI has taken action against 123 members for professional misconduct, and this year, it was investigating 75 cases, according to Chopra. “Unfortunately, the courts are granting stay without distinguishing between public interest cases and non-public interest cases,” he said.

As part of its recommendations for the proposed amendment to the law governing ICAI, the institute has suggested that it be allowed to proceed against companies against which cases of repeated misconduct are reported. Under the current law, the ICAI can only proceed against individuals.

On the implementation of the International Financial Reporting Standards (IFRS), originally scheduled for April 1, 2011, Chopra said the ICAI had already made its submission, including 35 standards and Schedules 14 and 6, to the National Advisory Committee on Accounting Standards and to the Ministry of Corporate Affairs.

He said industry bodies, which are now seeking more time, were part of the consultations throughout, as were the 300-odd companies that are supposed to implement IFRS in Phase-I.

The ICAI would prefer the original deadline for IFRS implementation, he said, adding that it was for the Ministry of Corporate Affairs to take a decision on the matter.