A couple of years ago, a group of chartered accountants came out with a white paper on the functioning of the multinational accounting firms (MAFs) exposing in detail their modus operandi worldwide. (A copy of the same is available at www.mrv.net.in). It detailed several instances of failures and connivance of leading auditing firms.

Why the surprise?

Yet, when l’affaire’ Satyam exploded, analysts, media and the entire corporate and accounting world were stunned, more so, given the fact that the auditor of Satyam happens to be one of the big daddies. Frankly I am not. Given the lax way that we operate our financial system and the efficacy of our regulators, it is only surprising that it took so long to happen.

With the steadfastness of Pakistan, which dismisses any evidence provided by the world about its terrorist connections, India Inc. continues to ignore the facts staring at them and continues to appoint these global bigwigs. Media continues to patronise them. Analysts continue to believe them. No wonder, all of them collectively are surprised, shocked and stunned.

Whither the regulators?

The standard operating procedure of these firms is to claim global status whenever it suits them. And having collectivised themselves into a network of firms across countries, in case of any problem, these firms reflexively claim to be separate independent firms and not linked to the others.

This nebulous manner of arranging their network has ensured that they have entered India by networking with existing accounting firms as well as opening separate management consulting companies.

Commenting on this arrangement the ICAI in June 2002 stated: “the Government should review the alternative route of entry of accounting firms in India in the name of management consulting firms, and, in circumvention of the law of the land taking place directly and indirectly, performing accounting services.”

Sadly, in spite of much time having elapsed since then, ICAI has been unable to take action on the alleged “circumvention of the law of the land,” by its own members in India. The reason for the same is obvious: as on date, two partners/ associates of PWC are members of the ICAI, the governing body that is in charge of disciplinary matters of auditors. Normally, basic morality would demand that these members resign from the Council to ensure a free and fair investigation. But, even to have such expectations on morality are considered amateurish!

It is equally interesting to note that some past presidents of the ICAI have become partners of these firms that were networked with the MAFs. Naturally, instead of actually using their office to control this illegitimate presence of MAFs, many leaders within the profession have actually gone on to use their offices to legitimise the presence of these MAFs.

When the bad drives out the good...

Remember Gresham’s law ‘when bad circulates with good, bad would drive out good?’ Yet ICAI chose to remain silent or complacent in this fight against the bad. In the process, when a messy affair like Satyam happens, ICAI makes itself ‘questionable’ by many.

Be assured that ICAI is known to take tough action against errant members normally but when high profile cases surface, abnormality rules the roost! Beginning from the securities scam in the early 1990s, ICAI has been unable to walk its talk of bringing erring big players, especially if they are Council members, to book. When it concerns the MAFs, the hunter becomes the hunted.

GTB the cause, Satyam the effect

What is interesting to know here is that the election to the office of the vice-president of the ICAI is so bitterly fought by these Council members that every vote of every member becomes crucial. And that is where the quid pro quo begins.

Despite ICAI’s claims of Chinese walls, it is well known that till date, the disciplinary case against the auditors of Global Trust Bank Ltd, presumed to have been initiated on the instructions of RBI itself, is still pending resolution.

In all fairness, the enquiry might be going on and is probably even in an advanced stage; but as long as the whole process is decidedly opaque, a normal member keeps his cynicism. And, by chance, if the enquiry comes to a culmination anytime now and ICAI comes out with its long-awaited decision, the general perception would only be that it needed the Satyam affair to make the GTB affair end. A speedier justice dissemination system would have saved the Institute this ignominy!

It may be recalled that in the GTB case, RBI initially alleged violations by auditors (as it did in the securities scam in early 1990s). Yet, it did not take the matter to the logical conclusion on both occasions. Given this track record, it is doubtful whether the errant players, especially the high profile ones, would ever be nailed.

So is SEBI or for that matter, the Registrar of Companies or the Finance Ministry or the Ministry of Company Affairs. A job offer for the son-in-law of the joint secretary here, or the daughter of the assistant secretary there, preferably in exotic locations, might do the trick.

Even assuming that PWC is not guilty (it is quite possible that it is a victim of circumstance rather than villain of the piece), if justice is to be done, all the partners of PWC and associated firms should resign from the council of ICAI forthwith as well as from the government-sponsored committees.