AUDITORS MAY HAVE THE LAST WORD ON A/CS

Cos May Have To Restate Financials If Auditors Raise Objections

 COMPANIES will have to restate financial statements to accommodate auditors' objections to any figure in their annual accounts, if the country's accounting rulemaker, the Institute of Chartered Accountants of India (ICAI), has its way.
    If the government accepts the proposal, annual reports will contain financial statements that fully satisfy the auditor's scrutiny — signalling the end of qualified company accounts.
    The proposal has been cleared by a special group set up by ICAI to suggest ways to improve financial reporting by companies. ICAI will forward the recommendations to the government.
    According to the proposal, a company that does not restate its accounts, accommodating the statutory auditor's suggestions, would be barred from paying dividends or raising funds.
    At present, an auditor's scepticism about any portion of the accounts presented by a company is tagged along with the annual report and an investor has to work hard to correlate every auditor qualification with the number or numbers under challenge.
    If the ICAI special group's proposal goes through, this would be a thing of the past. Accounts will become more transparent, and the auditor will be taken far more seriously than at present by companies.
    The proposal is among a slew of measures aimed at improving financial reporting standards in the country, said ICAI president Uttam Prakash Agarwal.
    The proposals could be implemented through amendments to the ICAI Act, a move that has been mooted in the aftermath of the Satyam scandal.
    The proposed change would allow all stakeholders to get an easier grasp of a company's balance sheet, as they will not have to correlate various numbers with the audit report. Practice exists overseas
THE proposal, which is being made in an attempt to make companies 'seriously act on auditors' disagreements rather than merely acknowledging such disqualifications without any changes made to that effect is, however, not new in India. For a number of years, the Securities Exchange Board of India (Sebi) has made it mandatory that companies going in for an initial public offer (IPO) will have to adjust their past results to give effect to all audit qualifications, says Rahul Roy, director at Ernst & Young India.
    The practice of revising accounts of companies whose financial data has been questioned by their auditors, is in conformity with globally followed practices. "In most developed countries, all potential audit qualifications are discussed with the company's management which revises their accounts to ensure there is no disagreement with the auditor," says Mr Roy, who has also earlier served as ICAI's president.
    souvik.sanyal@timesgroup.com