Thursday, May 16, 2013


The general public and the society including top bureaucrats, politicians, media personnel, social activists, thinkers, intellectuals and policy makers and those who determine the future directions of the society and the economy expect the auditing profession to perform the roles of a watchdog who can monitor the audited entity comprehensively to ensure that interest of owners, minority shareholders, investors, bankers, government, regulators, suppliers, customers and other stake holders are fully protected. Most importantly interest of the audited entity are preserved and various financial and operational decisions taken by the management at various levels were in the interest of the company and were within the policy framework laid down by the Board.

The Comptroller & Auditor General of India (CAG) has given a new dimension to the scope of audit by issuing several path-breaking and courageous audit reports bringing out large number of severe infirmities and financial irregularities in the working of the government, ministries and various independent autonomous government bodies, and regulators. According to CAG report they have questioned the decisions taken at various levels of the government, which according to CAG were beyond the overall policy framework laid down by the government. CAG has been very critical on

  • Performance Parameters : The various CAG reports have questioned the performance achieved by various government departments and bodies, as compared to money and resources allocated to them and spent by them.
  • Performance Achievement : CAG has also outlined performance appraisal in its reports, the areas in which the overall purposes for which a significant financial layout was made, was not achieved.
  • Physical Outcome : CAG has also examined the actual physical outcome in certain areas as compared to what is documented by various financial statements, vouchers, contracts, reports and other documents.
  • Accounting Policy : CAG has also questioned various accounting policies adopted by organizations working in PPP model, wherein revenue of the government or resources of the government have been compromised due to non adoption of generally accepted accounting practices. For e.g. in one of the airports developed in terms of PPP model, the money received by the private sector developer from long term lease of the land to number of hotels amounting to thousands of crores have been accounted for by the developer as capital receipts and the developer has not shared mandatory 46% revenue with the government.
  • Decisions Review : CAG in its reports have also questioned a large number of decisions taken at the highest level and middle level of the management which were, although technically documented, on the face of it as appropriate but in fact most of such decisions were neither taken in the best interest of the government or the regulators or organizations concerned. Most importantly these decisions were beyond the overall policy framework laid down by the government/audit entity. The aforesaid initiatives on the part of Hon'ble CAG have brought to light a new debate within the audit profession and the entire chartered accountants circle as to what should be the real scope of audit and can be really ignored the real expectation of the society and the public from the profession of chartered accountants and auditors. Could not understand this?
  • Auditors' debate: The entire auditing profession, more especially all leading chartered accountants are very actively debating on as to whether the international standards on auditing need a comprehensive revision and rather than only reporting on internal control, compliance of various decisions, documentation, supporting vouchers, bills, receipts of goods and other supporting facts and figure examination, is the real audit different and whether the expectation gap is real. The auditors are debating as to -

  1. Whether they can question the decisions taken by the management at various levels, in case they are not in the interest of the company or they are not in  accordance with the overall policy guidelines determined by the Board or shareholders/owners.
  2. Whether the auditors should review the actual performance vis-a-vis budgeted, standard or estimated performance at the time of financial outlay. Whether performance of management team need to be critically examined by the Auditors.
  3. Whether besides the examination of financial figures and documentation supporting them, auditors need to confirm and verify as to whether the purpose to which the money was spent has been achieved.
  4. Whether the Physical outcome arising out of the financial outlay is commensurate to the money spent.
  5. Whether adequate due diligence was undertaken while carrying out various functions of the management.
  6. Whether the auditors need to go in real corporate governance, rather than just verifying only symptoms or requirements of compliance of corporate governance indicators.
  7. Whether the auditors can review the information disclosed to the audit committee or to the board of directors and to the shareholders, with a view to achieve adequate transparency and responsibility in the decision making process.
  8. Whether the quality of services or quality of goods, claimed by the corporate were achieved or the corporate concerned is playing with the interest of various stake holders including customers, suppliers and employees and most importantly the shareholders.
  9. Whether the propriety aspects of the audit are to be undertaken by the auditors, once the shareholders appoint them to review and undertake the audit and assurance process.
  10. Whether auditors can question the extravagant or unwarranted cost and expenses.
  11. Whether related party transactions are in the interest of the company or their justification can be reviewed.
  12. Whether the money advances has unsecured loan as interest free loan or certain guarantees, advances or expenses were incurred without adequate justification, bearing the interest of the company in mind. 
The aforesaid list is unending and can be summarized in one statement i.e. whether the auditors should be made responsible to ensure that the affairs of the audit entity are managed in a manner that they are genuinely in the interest of the owners, minority shareholders, buyers, suppliers, employees, government and regulators, society and most importantly the overall interest of the audit entity and the nation. You can't expect auditors to be all pervasive, do all and know all kind of class....Please rethink on this issue.


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