Page 49 - Banking Finance November 2020

ARTICLE

suggestions, a committee has been constituted to suggest both in the way of presentation and way of calculation
possible changes in the regulatory provisions to improve the of financials of the company. The choices so made affect
independence of the auditing profession. the financial reporting quality and earnings quality
respectively of the company. Any dilution in earnings
As regards the measures to improve the quality is much difficult to detect whereas it is possible
independence of auditors, following measures to detect dilution in the financial reporting quality. This
aspect related to the application of accounting
can be adopted:
standards needs to be looked into by the MCA as well
1) The fee for the auditors may be fixed by an appropriate as the ICAI so that its misuse can be prevented.
government authority like MCA or CAG.
Safeguards need to be developed for the same.
2) An auditor should be barred from doing non-audit work
6) In case of large companies, only those auditors should
for the firm whose financials he/she is auditing. To be mandated to be hired by them who possess certain
ensure that the auditors do not lose any income due to minimum years of experience. The number of years of
this provision, auditor of firm A may take up non-audit
experience required may be fixed by the MCA. It will
work of firm B and auditor of firm B may take up non- check deliberate hiring of inadequately experienced
audit work of firm A. auditors by the management.
3) The appointment of auditors should be done by an
independent authority and not the management of the Finally, it can be said that the auditing profession is one of
company.The Ministry of Corporate Affairs (MCA) may the pillars supporting the economy of the country. The
be an appropriate authority in this regard. strength of this pillar is of utmost importance in ensuring
good health of the economy. There are multiple factors at
4) An auditor/audit firm should be allowed a maximum
play which lead to dilution of audit quality in business entities
tenure of 3 years/5 years only in a company instead of
the present maximum tenure of 5 years and 10 years and some such factors have been enumerated above. There
is an urgent need for all the stakeholders to ponder over
for individuals and audit firms respectively. This will
the issue and initiate measures for plugging the loopholes
reduce to a great extent the possibility of an auditor/
audit firm developing any personal relationship with the in the auditing profession.
promoters of the unit.
References:
5) Choices in the application of accounting standards
1) www.mca.gov.in
enable the auditors to easily accede to the requests of
the management for presentation of financials in a 2) livemint.com
certain way that suits the management. Choices exist 3) economictimes.indiatimes.com

Corrigendum
In Banking Finance September 2020 issue an article was published Institutional Protection Scheme for Urban C-operative
Banks: Lessons from German Co-operative Financial Network authored by Dr Ashish Srivastava, AGM, College of Agricul-
tural Banking, Reserve Bank of India, Pune. In the said article on Page number 35 in first Column, fifth paragraph please
read the figures as Rs.48 billion instead of 48 million.
Also as per a recent amendment the deposit insurance in India has now changed from Rs.1 lakh (0.1 Million) to Rs. 5 lakh.
The above errors are regretted.
-Editor

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