Govt should fine the 'Big 4' audit firms for lapses, says Amit Tandon of IiAS

There have been several instances of accounting irregularities surfacing in India Inc off late. What are some of the biggest concerns on financial reporting and should investors without accounting knowledge only invest in companies with very high governance standards? Amit Tandon, MD, IiAS and JN Gupta, Former ED at Securities and Exchange Board of India (Sebi), answered these questions.

“We need to remember that the Big 4 auditors audit about 65 percent of the top 500 companies and of course it is much lower than what you have seen in the US and UK where it is upwards of 95 percent but it is still a fairly high number. So the question is whether it is going to be disruptive and against that, you need to ask the question that has the Big 4 audit firms been providing the assurance which they have promised to provide all these years. If the answer is no, then we need a solution. If the answer is yes, I would suggest that we need to put a fairly high fine on these companies and get on with life,” said Tandon on Friday.

“The auditors, the rating agencies, the independent directors are all gatekeepers for the minority investors because they are the people who are in the boardroom within the management circles, circling around there interacting with them as against the investors were sitting outside and watching what is going on. So they have to play a far more responsible role,” he said.

When asked who should the investor trust, Gupta replied, “When an investor looks at numbers or ratings, he is given to understand that these are the correct things and it portrays a correct picture but unfortunately in the past couple of months or years, many of the times the faith is shaken. The reason is that many times the auditors have not played their role perfectly.”

“When you say the auditor has not paid attention or not done thing 100 percent faithfully doesn’t mean that the entire firm or entire industry has not done it. There may be some black sheep and banning the industry or a firm is not a solution,” Gupta added.

“The relevant information should be given in a manner where the investor can understand it,” said Gupta.