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ICAI to increase audited report cross checks

Posted on 22 April 2008,    
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11-member team to steer peer review of CA audits

Author : Joel Rebello/DNA-Daily News & Analysis

Indian companies hit by forex derivative losses may be in for greater scrutiny from auditors in their balance sheet of 2008-09.

The Institute of Chartered Accountants of India (ICAI) is gearing up to play a more proactive role in the management and auditing of corporate accounts especially in the light of the current crisis to have hit corporate India.

So, besides ensuring that chartered accountants (CAs) show professional prudence in ensuring that the mandatory disclosures have been made, the ICAI is also implementing audits of CA firms and companies to ensure that proper accounting standards are maintained.

Uttam Prakash Agarwal, vice president, ICAI, said the institute has been randomly cross-checking the audited books of companies since 2004 but this year the checking would be more intense.

Also on the agenda is a review of the working of CA firms.

"We call it the 'peer review' programme. CAs are spread across the country, so in order to monitor them, the institute has engaged senior CAs with more than 10 years experience to review CA firms," Agarwal said.

Such a move assumes significance due to the current milieu of complications arising out of forex derivatives losses.

The ICAI has formed a 11 member panel comprising five ICAI members and six 'outside' members such as retired bankers, officials from industry bodies and government officials to oversee implementation of the 'peer review'.

"We will look at audits of companies having turnover of more than Rs 50 crore for a three year period and give certificates to firms on the basis of parameters like technical standards. We expect to enhance the CA quality because of these reviews," he said.

ICAI has about 20,000 members with a minimum of 10 year continuous experience in the perr review process. Besides fellow CAs, the ICAI will also cross check the balance sheets of companies for any mistakes.

ICAI has formed a 40 member financial reporting review board (FRRB) including 32 ICAI members as well as 8 other nominees from the government department of company affairs, industry body Assocham, retired bankers and accounting professors.

"Each year we randomly pick about 500 to 1,000 companies and check for possible flaws in their books due to non-compliance. And if the company books are not clear we can also request for statement from banks to verify the list of external debtors," Agarwal said.

Agarwal said that the ICAI will have to play a proactive role in ensuring that accounting prudence is maintained especially as companies may try to avoid disclosing some transactions which may have hit them badly because of wrong bets on forex derivatives.

However, Agarwal said that current accounting standards are enough if implemented properly to help in proper disclosures. "There is nothing wrong with our accounting standards. They are among the best in the world. Even the basic accounting standard 1 (AS1) includes foreign currency risks. But having said that we have already started moving towards accounting standard 30 (AS30) which will be implemented in 2011," he said.


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