Financial Daily from THE HINDU group of publications
Friday, Jul 23, 2004

News
Features
Stocks
Cross Currency
Shipping
Archives
Google

Group Sites

Corporate - Auditing


ICAI refers auditor rotation issue to internal panel

K.R. Srivats

New Delhi , July 22

AUDIT firms and their partners can now breathe easy on the controversial issue of auditor rotation.

The Institute of Chartered Accountants of India (ICAI) is taking a re-think on the issue.

Superseding the institute's stance taken on this matter in July 2003, the 18th Central Council of the ICAI has referred the entire issue of rotation of auditors to an internal committee — the Committee on Ethical Standards and Unjustified Removal of Auditors (CESURA).

"We have now passed a resolution and referred the entire issue (rotation of auditors) to CESURA. I expect the committee to submit its report within the next three months. The future course of action will now depend on the recommendations of this report," the President of ICAI, Mr Sunil Goyal, told Business Line here.

The committee is expected to deliberate on the pros and cons of introducing a system of audit firm rotation.

"Last year, the council passed a resolution on audit firm rotation and decided to go in for a referendum. But now we have again passed a resolution and referred the entire matter to CESURA. Hypothetically, if the committee feels that audit partner rotation would be more suitable than the audit firm rotation, then the council will consider such a recommendation," Mr Goyal said.

The 17th Central Council of ICAI had in July 2003 passed a resolution giving an in-principle approval for rotation of audit firms.

It also decided to conduct a referendum among the members of the institute on the matter of rotation of audit firms. Along with the referendum, the ICAI was also to seek the opinion of its members on the matter of making the joint auditor system mandatory in listed companies.

A joint auditor system is where every listed entity would have two independent audit firms appointed as statutory auditors.

The two firms usually act as a check on each other and take turns in auditing the different functional areas of a company.

At the heart of the debate on rotation of auditors is the need to ensure "independence" and "audit quality". There have been voices both for and against the issue.

The argument for rotation of audit firms is that if a firm serves a client for decades, then it can lose its independence.

This would be more so if the audit firm were to provide non-audit services to the same client.

On the other hand, there is also a school of thought that believes that the mandatory rotation of audit firms will have a negative impact on audit quality.

It has been contended that audit quality depends on a thorough understanding of business and the management and frequent changes would adversely impact it.

More Stories on : Auditing

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page



Stories in this Section
Hyundai set to launch Getz in August


BHEL to set up solar power plants in Sunderbans
Natco Pharma launches anti-cancer drug
SRF chalks out plans for pharma chemicals biz — To set up R&D centre in Chennai
Gujarat NRE signs pact with Chinese co for tech transfer
`Birlas willing to consider out-of-court settlement'
ICAI refers auditor rotation issue to internal panel
Former Glaxo official launches HR consultancy firm
Tata Steel scouting for acquisitions in Russia, E. Europe
Hind Paper plans to double HNL capacity
Top Line Shoes: Ministry seeks details from RoC
Tata Steel ties up with SAP India
KRBL ties up with agro firms for inputs to farmers
Tata Steel to pick 50% stake in Dhamra port
Godrej Consumer studying opportunities in SAARC region
TAFE aims for export push
Marico Industries: Betting on brand equity
Dabur India: Using technology to good effect
Coke official visits India
Corporates get out of g-secs; move into bank deposits



The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |

Copyright 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line