Auditors and their Great Lapse...

The recent confession by Ramalinga Raju of Satyam Computers Ltd again brings the issue of corporate governance to fore. He confessed that he had inflated the balance sheet of the firm in order to negate the case of hostile takeover. The cash balances were overstated and liabilities were under-quoted. This was not done over night, but over a period of years. Even though Rajus have been highly criticized for his action, but he had to do these acts in order to keep the management control within his family.



Parties to be blamed are independent directors and auditors. As per the listing clauses, the board of a listed firm is supposed to have independent directors. The independent directors are supposed to take care of ethical issues and protect the interest of minority shareholders. In this case, the independent directors were helpless because the fraud was known to only Rajus and MD.



This fraud which started few years back could not have happened without the knowledge of Auditors. This case of fraud could have been avoided had Auditors done their job properly. They are the one who are supposed to check the financial transactions and ensure transactions are recorded properly. They are supposed to safeguard to the interest of other stakeholders of the business, who do not have access to the financial information. The auditors for Satyam were one of the big fours of audit world and had it been some other country other than India, they would have wound up (like Anderson). ICAI, which is the apex institution for framing rules and conducting CA Exams; is equally responsible for whatever that has happened with Satyam. Auditors should take responsibility for whatever that has happened. ICAI, which always acted with a touch of arrogance, should set its own system right before things turn worse.