57% investors say Big-4 auditors have no credibility: IiAS survey

In more troubles for the auditing fraternity, an investor survey has found that 57 per cent large investors and sell-side analysts do not have any faith in the Big-4 audit firms as they have lost credibility.

According to a survey by Institutional Investor Advisory Services of 63 large investors and sell-side analysts numbering 89, conducted online between April 13-21, as much as 57 per cent of each of them have found "the Big-4 audit firms having lost their credibility with investors and are therefore open to move beyond them if they were banned".

Between qualified and unqualified accounts, 73 per cent support qualified accounts because they feel that at least they got to hear auditor concerns and if they asked for lean accounts, the risk was that the auditors would be muzzled.

It can be noted that ever since Satyam Computers scandal that came out in January 2009 the audit world, especially the Big Four, have been under fire from the regulators.

While market watchdog Securities and Exchange Board had banned PwC in 2018 from auditing listed companies for two years in the Satyam scam, the Securities Appellate Tribunal quashed the ban and the Sebi challenged it.

In June 2019, the Reserve Bank barred SR Batliboi & Company, an affiliate of EY, from carrying out statutory audit of commercial banks for a year after it found several lapses in the books of Yes Bank.

In the IL&FS case, Serious Fraud Investigation Office charged Deloitte Haskins & Sells and BSR and Associates (part of the KMPG network), for their failure in not disclosing the true financial health of IL&FS Financial Services and are looking at banning them from undertaking audits after they got some reprieve from the Delhi High Court.

In the CG Power fraud, the NCLT had thrown out the report prepared by Viash Associates, terming it as unprofessional and full of ifs and buts.

On top of these, there have been frequent resignation of auditors, creating doubts on the quality of the audits that is being presented to investors and also many instances of divergent audit reports.

It can be noted that in the US, auditors cannot publish qualified results. But only 23 per cent support moving to the American model by shifting our accounting standards also move in the same direction and insist on unqualified accounts.

This is despite 77 per cent of them believing that "only unqualified accounts are true and fair" as one get to hear auditor concerns.

Meanwhile, the survey also has found that 78 per cent of the investors, who normally clamour for dividends, in the poll preferring company retaining cash and fortifying their balance sheet this year as the economy is in shambles.

Similarly, 57 per cent of them also see promoters subscribing to warrants as a sign of confidence in the company and its operations.

However, equity dilution remains a concern for investors with 46 per cent of them being uncomfortable if dilution exceeded 5 per cent without disclosure regarding how funds will be used and 30 per cent putting this threshold at 10 per cent.

A vast majority - as much as 87 percent - support dual class shares, a class of shares that doesn't find much support among investors in most other geographies.

As much as 87 per cent are less supportive of promoter rights being embedded in the articles of association and periodically being voted on, as they have a more sanguine view about rights of private equity firms being embedded in the articles of association.