Letter to BS: Root cause for IL&FS' audit failure remains unaddressed

This is with reference to the second editorial "Audit rot" (May 7). The editorial has analysed the audit failure of Satyam and Infrastructure Leasing & Financial Services in great detail and one tends to agree with the causes identified. But the root cause for the degradation of the audit work remains unaddressed. The reason for the audit failure is the appointment procedure under the Companies Act. The Act may follow global procedure but it has failed miserably in India. A company whose management is being reported to the stakeholders is appointing its own judge! This makes a mockery of independence. 

I feel that an independent appointing authority like the Comptroller and Auditor General of India should be set up to which companies should deposit the audit fees. The independent body should appoint the auditors of all listed and unlisted companies with a threshold turnover. This body should also pay the fees to the audit firm. This way the auditor will remain accountable to the appointing authority and the independent body shall be at liberty to remove the auditor for any misdemeanour and shall also be empowered to blacklist a defaulting auditor, stopping all future appointments. The appointment procedure can also be made independent with the use of advanced algorithms. The root of the rot lies in the appointment and payment. Unless that is checked, all talks of cleaning the system remain futile. No one can rely on honesty through self-regulation when the stakes run into crores. 

Deba Pratim Ghatak, Durgapur

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