Terming “cosy” relations between management and auditors of a company as key to accounting frauds, the Corporate Affairs Minister Sachin Pilot has said that such a nexus would not be allowed anymore as lawmakers have become smarter after Satyam scam.
“Sometimes, auditors get into too cosy a relationship with the management, which creates a lot of problems,” Pilot said. To tackle this issue, the government is creating a new quasi-judicial body, National Financial Reporting Authority (NFRA), which would look after the quality of audit, compliance by auditors as also the disclosures that they make, Pilot said.
“Basically, it would be the nodal body to look after all financial reporting. It can suspend the licence of auditors when they find something is irregular,” he said, adding that there have been issues related to auditors that had led to various accounting frauds, including in the case of high-profile Satyam Computer scam.
“We have had auditors issue. After Satyam, hopefully we have become smarter. Now, no auditor can audit a company for more than five years,” Pilot said.
Way back in early 2009, erstwhile Satyam Computer’s founder and then Chairman B Ramalinga Raju had admitted that the company’s accounts had been falsified for years, although the auditors did not notice any accounting fraud.
Later, the company auditors were also found to be guilty in that case during various investigations into what had emerged as the country’s biggest ever corporate fraud till date.