The recent fraud at one of the leading bank in India has again started the discussion within all the stakeholders as who is liable. While both the leading political parties are blaming each other citing the time lines of extending such loan and it recovery, the process of deciding the ownership also started slowly.
The honorable finance minister in one of the public event recently directed the torch towards the various auditors for not detecting the fraud. This does question the entire process of auditing done by various auditors involved in the process. Few of the auditors on their part immediately got involved in shifting the blame to management either by getting cited openly or through muted motion.
Here is my take as why auditors as professionals should immediately accept the responsibility for their part:
- Auditors are the person responsible for ensuring the true and fair view of financial statements of any organization. Such fraud does have immediate and big impact on such financial statements which is audited by them.
- They are the person involved in auditing the entire process, system, policies etc and having almost end to end access to all the areas of organization. I doubt whether other professional involved like independent directors do have such kind of access, or ability or skills to detect such fraud.
- All stakeholders viz management, employees, shareholders, government etc are having great confidence in auditing fraternity and the powers bestowed on them by their respective regulations. There is hardly any reason why auditors should not be able to detect such kind of frauds.
- Management is habitual to take the aggressive decision while running the business. It is the auditors who need to ensure that impact of such aggressive decisions on various financial statements is considered.
- There are multiple levels of audit being done in such bigger organization like concurrent audit, system audit, internal audit, statutory audit, regulatory inspection etc. It is quite surprising that none of such audit over 6 to 7 years could detect such process gap. It does question the entire audit process.
Auditors should also ensure that rights skills and resources are deployed while auditing such systematically important organizations. Majority of the cases very junior level staff (so called interns) are involved in basic level of auditing of any such firms while the qualified person are involved in review of their work. Being the onus of 1st level of activity put on relatively unskilled person may not be proper and in good interest of all the stakeholders. Many times the problems not getting detected during 1st level of check may also result the inadequate review of overall financials by qualified person.
It is imperative that auditors being professionals should accept the responsibility of such system failure of their process. In Sanskrit language there is saying that ‘Kshama Virasya Bhushanam’ (क्षमा वीरस्य भूषणम) means the apology (or for that matter forgiveness as well) is jewel of Heroes.
It is time that auditors accept the responsibility, evaluate the problems, punish the wrong doer and make the entire stakeholders confidents that all will be good.
Author: Hemraj Satyanarayanji Joshi
Chartered Accountant - firstname.lastname@example.org
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