Securing accountability from professionals

Professionals like Chartered Accountants, Company Secretaries, Cost Accountants, Valuers and Monitoring Agencies play a vital role in ensuring that the companies compliance with the legal and regulatory requirements.

Unfortunately, in the recent past the string of corporate frauds in India have exposed the vulnerability and (sometimes) lack of professional competency amid certain Professionals. Their failure to detect the discrepancies during the inspection and verification of the companies’ accounts, records and compliances is attributed to be contributing occurrence of corporate frauds.

The Securities Exchange Board of India (SEBI) has recognized the imminent need to closely monitor the functionality of these Professionals and ensure these Professionals are held responsible and liable for their acts, omissions and errors.

The SEBI is deliberating to dispense regulations mandating these professionals that they are responsible to ensure the companies are complying with legal and regulatory requirements and act diligently in the interest of public at large – by covering them under the ambit of SEBI.

The SEBI identified that certain Professionals are being quite negligent in conducting audit and verification of the financial and other related accounts.

If this trend is permitted, it will affect the investor confidence (which is a key factor in functioning of the capital markets) due to the reduction in trustworthiness of and reliability on the financial information provided by the Professionals.

It is very crucial to ensure that the annual reports and financial statements passed through the verification and audit of the highly competent Professionals are highly reliable and accurate.

Negligent or lack of proper professional conduct on part of the Professionals has the knack to corrupt the corporate system, de-stabilize the capital markets and destroy the integrity of capital markets/corporate world.

As a consequence, investors and companies won’t trust the opinion and work of the Professionals which is a bad omen to the functionality of capital markets.

As of now, the professional activities of the Professionals are governed by the respective independent regulatory bodies. Upon the enforcement of the proposed regulations – all the activities of the Professionals related to capital market shall be covered under the ambit of the SEBI. 

Frequent discovery of discrepancies in the financial statements of different companies by the SEBI is also cause for the concern and highlighted the immediate requisite to tighten regulations governing the conduct of the Professionals.

The regulations under deliberation will confer more powers on SEBI to sternly deal with the Professionals for negligent or improper professional conduct. Such regulations will further mandate the Professionals to highlight any material discrepancy/conflict of interest in the certificate (audit/value/due diligence) without fail to avoid any kind of disciplinary action that will be taken by the SEBI against the Professionals.

It is hoped that following the enforcement of the proposed regulations will ensure that the Professionals will perform their work diligently and maintain proper conduct in discharging their professional duties and make certain the Professionals are accountable, responsible and liable for their acts – ultimately reposing the lost confidence of investors and companies in the existing audit and verification system and bring stability to the capital markets.

Research inputs by Paruchuri Baswanth Mohan