ICSI moots detailed guidance for company secretaries

To bolster corporate governance practices, company secretaries' apex body ICSI has mooted detailed guidance for its members including the need to safeguard against "familiarity threat" arising out of a corporate having same auditor for a prolonged period.
The latest draft guidance manual also comes against the backdrop of the new Companies Act that provides for stringent corporate governance practices. Many provisions of the law came into force from April 1.
According to the Institute of Company Secretaries of India (ICSI), the manual would act as a guide to its members for establishing policies, procedures and systems to maintain highest quality standards in their assignments.

The draft guidance manual on 'Quality of Audit and Attestation Services' touches upon a slew of topics such as threats arising out of companies having a close relationship with a client or its directors, among others.
A familiarity threat arises when, by virtue of a close or long-term relationship with a client, its directors, officers or employees, the firm or person on an engagement team "may become too sympathetic to the client's interests".
This could compromise the independence of the auditor or the firm, the draft manual said.

To prevent such threats, it has suggested that there should be rotation of principal auditor at companies.

"... Deploying the same principal auditor on an audit or assignments from the firm over a prolonged period of time may create a familiarity threat.
"This threat is particularly relevant in the context of the audit/assignments of listed entities and safeguards should be applied in such circumstances to reduce such threat to an acceptable level," it noted.
Besides the draft manual has said that while carrying out the assignments, firm should ascertain the integrity aspects of the client.
"Integrity is associated with soundness or moral principles and character in dealings with others," it noted.
In this regard, the identity, business reputation and attitude of the owners and key management personnel and related parties should be checked.

Among others, the manual -- prepared by ICSI's Quality Review Board -- has mooted peer review for company secretaries.
"The focus lies on the promotion of continuing quality improvement in an atmosphere of openness and mutual trust that contributes to enhancing transparency and comparability," it said.