The Hindu Business Line : The cat that chased the rat that...

IT IS jungle law that if there is a sparrow to watch a worm, there is a cat to track the sparrow, and a dog to pounce on the cat, and so on. Normally, economists don't work that way, because redundancy is wasteful, and so they tend to work on varied routes.

Also, practically, it is too cumbersome for one economist to check another economist's work. Since that would be as much as trying to find the beginnings and ends of cooked spaghetti, economists feel there is enough space in the world for everybody and their pet theories.

But when it comes to auditors, the world takes a different view. They are looked at with suspicion, and there is the continual demand for having some sort of double-check of what they do.

Such practice is quite common in the cloak-and-dagger world of spies too. You need to be doubly sure that the assigned mission is completed the way you wanted it in the first place. And there is the risk of double-cross, which is why you have a girl usually to go on the Bond's trail, though they end up teaming up after the usual trust-distrust game.

While this apparent wasteful exercise may serve no other good than finding employment for many, proponents of the `watch-the-auditor' theory contend that there is a great need "to credibly regulate auditors effectively so as to ensure that they have properly discharged their fiduciary responsibilities", as one may find in the recent report of the Naresh Chardra Committee on "Corporate audit and governance".

But the question "Who audits audit?" has vexed economists as well as corporate governance specialists, concedes the report, though it goes ahead to give quite a few recommendations to ensure that the poor chap does his job properly.

It is a common spectacle in houses where the mother helps the children finish the homework, but the father keeps eavesdropping from behind his newspaper just to check his wife doesn't make a mistake about interpreting math problems or geography questions. And when he bungles, his dad — who is pretending to be reading the Ramayana — intervenes. No different in offices, too, where a lowly foot-soldier's work would be supervised by layers of hierarchy who have no better job to do except oversee the execution which, in fact, would happen smoother if there were fewer people peeping over the shoulders.

If ablutomania is an obsession to wash oneself, lockomania could be a craze for locking over and over (as desktop users do with password securing), and auditomania the in-thing, that is, to have more of auditors. When carried to an extreme, this translates into putting fences around professionals, as if they are convicts in a maximum-security prison, serving a sentence that is neither true nor fair.

To insist that to ensure rectitude, `nothing works like disclosures' is in perpetual conflict with what the management would want to achieve. The guidance, "When in doubt, disclose" is probably the simplest and best yardstick for evaluating good corporate governance, says the report.

The Naresh Chandra Committee feels that "more can be done in the interests of shareholders, other investors, stakeholders and the community, at large, without diluting the flexibility of needed managerial initiative" and proceeds to recommend that it would be "good practice for the audit firm to annually file a certificate of independence" to help ensure that the auditors have retained their independence throughout their period of engagement.

Also, that there should be a certification by the CEO and the CFO stating a series of things "to the best of their knowledge and belief". But all these boil down to saying that they have wound down their collars and are sitting next to the chopping block, just in case.

hindubusinessline@hotmail.com

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