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S. Murlidharan

S. Murlidharan on the need for the accounting body to strive for better public perception

THE stereotyping of the Indian police force, as reinforced by our movies, as venal and brutal is difficult to live down. But that has not stopped them from trying to win the public over through campaigns designed to stem the growing cynicism. The lot of the more rarefied breed of auditors is no less unenviable. The ICAI did start a publicity campaign a few years ago in its effort to win over public support and to explain the role of the auditor.

For inexplicable reasons, that campaign seems to have been halted as abruptly as it was started. This is not to suggest that mere publicity gimmicks and spin will endear auditors to investors and others in the public domain.

There is indeed an imperative need to bone up auditors forensic skills because the society no longer is taken in by the glib watchdog-not-bloodhound disclaimer. Having said this, it is urged that the ICAI take a few steps immediately to shore up the public image of auditors. And these steps can be taken by the ICAI on its own without any legislative sanction.

From times immemorial, auditors in India have been privy to the rather dubious practice of ensuring the scandalous identity of dates of all the documents that are compendiously called annual report.

The accounts, auditors' report thereon and the directors' report which, among other things, contain directors' response to the adverse comments of the auditors all bear the same date fuelling the natural suspicion that something is amiss and that the auditors have been remiss in performing their duties. Many a reader of annual report is intrigued to find this synchronisation.

How can the auditor perform audit and give his comments on the same day the accounts are signed by the directors, is the common incredulous refrain. The Department of Company Affairs finds nothing wrong in this hoary but seemingly dubious practice (circular 7 dated April 26, 1974).

It says that after all auditors have got access to books and other records all through the year and do in fact have a head start in commencing the audit without waiting for finalisation of accounts. So much so, it goes on to add, eyebrows should not go up when the formality of signing the audit report is done on the same day when the directors sign the accounts.

This argument, pedantic as it is, does not wash with the public. Like justice, audit must not only be done but must be seen to have been done. And it is not as if only the public is outraged. Even the law has provided for proper sequencing: "The... account shall be approved by the Board of Directors before they are signed on behalf of the Board... and before they are submitted to the auditors for their report thereon," is the mandate of Section 215(3).

Both in deference to this legal mandate as well as to foster a more sympathetic public perception of audit, the ICAI must ordain that the audit report be separated by a decent interval from the accounts. That such distancing of auditors from accounts will call for two board meetings — one to approve accounts and another to give explanation on auditors' report — need not detain the auditor.

Another practice that must be stopped forthwith is signing of accounts by the auditor without an express disclaimer as to authenticating the veracity or truthfulness and fairness of accounts.

An auditor is not required to sign the accounts. Indeed that cannot be the legal mandate given the axiom that one cannot audit one's own creation.

The reason why an auditor signs the accounts, as it is, is to establish a link between his audit report and subject matter thereof.

Fine, but this sans an express disclaimer leads a layman to believe that the auditor has cast his imprimatur on the accounts. This perception must be disabused.

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