Wednesday, June 16, 2021
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Auditors need to be scanned for financial frauds?

Fingers might have been pointed against the government, banks and RBI for their failure to detect the PNB-Nirav Modi fraud but even auditors and Chartered Accountants of business barons have failed to conduct proper audits which could have averted the scam. On one hand, the Modi government has started blame game over the scam but nobody is questioning the role of auditors. Auditors have failed to follow proper reporting and compliance mechanism to prevent the fraud.

When AV spoke to CA Uttam Prakash Agarwal, he said that a massive scam of more than Rs 20,000 crores has been engaging the attention of entire nation since last few days. He said, “The modus operandi of the scam has left everyone shocked. What baffles me is that the number of persons, irrespective of their banking knowledge, are appearing on TV — some with a purpose to attract attention and some with an intention to please the government by justifying its stand on the scam. In the process, without even appreciating the role of auditors, they have been blaming auditors for their role in the scam. Not surprisingly Finance Minister too has blamed the auditors.”

“Not even for a moment, I wish to suggest that auditors may not be negligent in discharging their duties. However, let us wait for few days and be aware of the facts before giving the verdict. Even though 11 corporate officials have been arrested but the firm’s CEO is yet to be nabbed. Is it because of his relationship with a particular family? Also FM needs to ascertain from PNB that what action was taken in Winsome Diamond fraud case few years back and whether promoters of the company were arrested or not and if not what were the reasons for the same. Has their relationship with a particular family saved them?” he asked.

He also asked why no action has been taken against RBI. “Can RBI say that they are unaware about irregularities in the issue of SBLCs, LOUs and Buyer’s Credit? Banking system has allowed usage of LCs for period much beyond the operating cycles of borrowers further extended by allowing buyers credit. What I am able to write here is only a tip of the iceberg. I appeal to Finance Minister to book all these officials, borrowers and regulators. Auditors are a part of the whole system and cannot be held entirely responsible.”

Uttam called for improving auditing practices world over and not only in India. “This would happen by providing greater autonomy to the auditors. I have deliberately said “world over” as the foreign operations of all these banks are not being audited by Indian auditors,” he added.

He added that the Indian CA profession is committed to the government to prevent the repeat of such scams in future and to raise early alarms as well and if the need arises, stern actions can be taken against their members if found guilty.

Ever since the Modi government has come to power, various scams have been unearthed but the government has failed to take action against scamsters and allowed them to escape from the country. Initially media gives ample coverage to these stories but after some days everything is forgotten and the accused roams scot free after committing the crime. Recurring scams have caused enormous losses to investors and created a bottleneck in the functioning of the capital market.

CA Anil Satyanarayan Bhandari said that whenever a fraud occurs, auditors are held responsible and people need to understand that it is not possible that auditors can avert a fraud everytime. He said, “Banks have been overly enthusiastic in lending loans to firms and it is necessary to examine the risk appetite of the bank.”

He added that the tax payers will have to bear the burden on account of these frauds. “Sometimes banks go ahead and offer lump sum loan and take excessive risks. It is necessary for auditors to ascertain that the approval mechanism and banking system are strengthened,” he said.

This fraud has occurred at a time when public sector banks are grappling with rising NPAs and government is planning to bail out them through capital infusion! Already the government has been increasing taxes to mop additional revenue to pump in capital for ailing public sector banks.

CA Ghia Tarun Jamnadas Ghia said that often bank management pressurises auditors pertaining to continuing their NPA classification. He said, “Banks only allot four to five days to auditors for conducting their audit so it becomes difficult for them to complete their work within this tenure. I think, Nirav Modi like frauds will continue to occur in India.”

“I have already filed a petition with the Bombay High Court mentioning that audit empanelment processes of RBI and ICAI are non-transparent. The High Court delivered the judgement in my favour,” he added.

Time has come for the review of the audit process in the aftermath of this scam to prevent the reoccurrence of such frauds in future. Chartered accountants’ apex body ICAI has sought information from investigation agencies besides setting up a group to study the system issues arising out of the incidents.

CA Chetan N Sheth said that chartered accountants are facing various limitations while discharging their duties. He said, “Their remuneration is decided by the management which is negotiable. Since last few years, auditors have become punching bags and nobody is bothered about the honest work done by them. Nobody is holding the management of banks responsible.”

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