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This refers to the article "Changing role of the auditor" (Business Line, August 2, 2002). There are many questions which are left unanswered on the Enron-Kenneth Lay-Arthur Andersen nexus. They reveal the conscious manipulation by the parties concerned disregarding corporate governance and professional ethics.

Even when a company adopts time-tested accounting standards such as GAAP and International Accounting Standards, what ultimately matters is the people who manage and administer the same. How can a statutory audit firm be allowed to function as a consultant and also as an internal auditor?

There could be no checks and balance when there are conflicts of interests. The auditor's independence and professional ethics should never be sacrificed. It must be ensured that proper governance in the corporate financial structure is always in place as a guiding factor. Auditors should also ensure proper governance in their work assignments. Auditing of the auditor is a must nowadays.

Perhaps, against the backdrop of the Enron episode, the Institute of Chartered Accountants of India (ICAI) is now compelled to frame certain guidelines for review of audit work. Moreover, the quality of audit work will improve if audit exercise is actually carried out with qualified assistants as core team members.

Audit should not be carried out by the same auditor for more than a specified continuous period of, say, three or five years in a span of 10-15 years. Statutory auditor should not be permitted to carry on other remunerative exercises such as, consultancy and internal audit. Strict impositions of disciplinary proceedings on the erring auditors should be put in place to have check and balance mechanism.

R. S. Raghavan

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