Regulatory Actions Stoke Fears Of Talent Flight Among Audit Firms
Amid a crackdown on erring auditors in cases of alleged financial irregularities, some experts and top executives at such firms are raising concerns about a possible flight of fresh talent from the profession.
While few are willing to speak openly against actions taken by regulatory and enforcement agencies against auditors for failing to flag financing bungling, senior executives at major audit firms said it was wrong at times to ban an entire audit network for alleged lapses by one or two individuals.
On the other hand, officials at regulatory and enforcement agencies said the audit firms tend to put the blame on individuals after finding themselves in the dock for their alleged role in frauds. The officials have often pointed out that auditors are supposed to be the conscience-keepers of a company and it is their duty to ring the alarm bells even at the slightest hint of a financial wrongdoing.
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There has been a spate of actions against auditors, including against PwC in the Satyam case and against Deloitte and BSR in the IL&FS matter.
Markets watchdog Securities Exchange Board of India has moved the Supreme Court against the Securities Appellate Tribunal's ruling that had quashed a two-year ban on PwC in connection with the Rs 7,800-crore Satyam scam.
In the IL&FS case, the Bombay High Court has granted a stay on NCLT proceedings against the company’s erstwhile auditors, while some auditors were recently arrested by the Economic Offences Wing of the Mumbai Police in the National Spot Exchange Ltd. matter, though they were released on bail.
Some auditors, including in the case of IL&FS matter, have come under the scanner of the Serious Fraud Investigation Office while National Financial Reporting Authority is looking into alleged accounting lapses at Infosys Ltd..
“There are fewer people now who are excited to join the audit profession, primarily due to a narrative that has got built around it in the recent times,” said one of the partners at a leading audit firm, citing actions taken by regulatory and enforcement agencies and the judiciary.
The Institute of Chartered Accountants of India’s former central council member Vijay Gupta said strict actions taken so far against auditors have meant that they have to undergo unwarranted scrutiny by authorities all the time, thereby constantly being under the scanner. This is dissuading the new talent from pursuing auditing as a profession, he added.
“Any young talent passing out from a professional course prefers to have freedom to practice his or her ideas in real life so as to explore one's self professionally. Sadly, auditing as a choice of profession is facing more roadblocks in the present scenario,” Society for Human Resource Management India CEO Achal Khanna said.
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The head of a leading executive search firm said new talent is more excited to join consulting roles than becoming part of an audit firm. “Liability mechanism for auditors is an area that needs to be duly addressed. Drastic actions are being taken against auditors even before being proven guilty,” said an auditor at a leading audit firm.
He questioned the rationale behind banning an entire audit firm, saying such moves have a larger impact on the industry and on people working in such organisations.
According to him, such actions would keep high-quality talent away from the audit profession and create an atmosphere of fear, trigger a spate of resignations by auditors and thus might impact investors in a big way.
Lack of quality talent will create further challenges for the audit profession in the country as the quality of audit would suffer, impacting the output around which major investment decisions are taken.Sandeep Parwal, Private Equity Investor
Experts opine that availability of trustworthy financial information on performance of companies is important for proper functioning of a market economy, but the entire auditing system has got into a precarious situation as questions are being raised around integrity of auditors.
Serious concerns arise if auditors' independence is compromised or when trust reposed in them gets betrayed as independent audits are fundamental to taking informed and correct investment decisions.
Generally, auditing is a lucrative profession with high-salaried positions. The duty of auditors are discharged by chartered accountants.
Set up under an Act of Parliament, the ICAI is the apex body of chartered accountants. As per the institute’s annual report for 2018-19, “Founded with about 1,700 members, the Institute has today 2,91,698 members as on March 31, 2019.”