Audit firms may face action for wrong-doing
The ministry of company affairs (MCA) intends to insert a clause in the Companies Act that will make audit firms also liable to prosecution as against the existing provisions that limits penal action only to chartered accountants, writes Anindita Dey.
The proposal, being pushed by government agencies, has found favour with MCA and the amendments could be made when the recently-introduced Companies Bill comes up for discussion in Parliament.
“This is the fallout of the Satyam [ Get Quote ] case where the accounting firm got away, while the auditors who represented the firm face punishment. Therefore, there should be appropriate action for the firm as a whole so that it is held liable for such fraudulent practices,” said sources privy to the discussions.
They explained that the logic behind the proposition was that auditors work on behalf of a firm with clearly laid down guidelines. They also share the revenues from the audit and are well aware of the developments in audit assignments. Therefore, an auditor does not work independent of his or her firm.