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Is ICAI attempting to bail out PW auditors?

Puritans in the accounting profession are aghast. Old-timers are flabbergasted. Youngsters are dismayed. In what must rank as the height of indiscretion, the President of the Institute of Chartered Accountants of India (ICAI) has, according to press reports, “attempted to meet” the auditors of Satyam inside the Hyderabad prison.

One may recall that in the aftermath of the confessions of Ramalinga Raju, the Andhra Pradesh police detained two partners of Price Waterhouse; the auditors of Satyam for their alleged role in the scam. The president of the ICAI has sought to meet these very auditors inside the Hyderabad prison where they are currently detained.

Given the size and brazenness of the scam, readers may be aware that multiple agencies are investigating the same. These include the Central Bureau of Investigation, the Andhra police, SEBI, Registrar of Companies and the Serious Fraud Investigation office. Experts have repeatedly pointed out that all these investigating agencies either lack the legal teeth or the necessary expertise to investigate the Satyam scam.

Most of these organisations are loaded with policemen well-versed with tackling traditional crimes, but not to tackle the scale, complexity and magnitude of this case. In my considered opinion unravelling the Satyam scam requires a thorough understanding of accounting, corporate law, FEMA, Banking laws and of course other related legislations, which these organisations obviously lack.

That makes the investigation of the ICAI – perhaps the only competent authority in the present context competent to handle the scam – extremely crucial. It may be recalled that as soon as the scam broke out the ICAI announced constituting a committee to investigate the matter under the chairmanship of the then vice-president who subsequently became the president of ICAI on 5th of February 2009.

Strangely, on 6th February, that is the very next day after taking over as the president of ICAI, he visited Hyderabad and sought to meet the auditors of Satyam. It is indeed a reflection of our times that immediately on taking over as the president of a premier accounting and regulatory body of the country; the president seeks to visit a prison to meet his colleagues in his personal capacity – the very same colleagues whom he is supposed to investigate in his official capacity!

That is not all. In a further show of imprudence, the incumbent president has proceeded to nominate one of the two PW partners, now detained by the Andhra Police, who is also a Council member into several non-standing committees of the ICAI!

It may be noted that the role of auditors of Satyam is not the issue. These are allegations at this point. However grave these allegations mat be it needs to be proved in a court. But as per press reports this very same partner of Satyam has also been indicted by the disciplinary committee of the ICAI in the Global Trust Bank case also. Hence all these collectively make even his presence in the council untenable.

Yet, the president chooses to ignore all these facts. First, by “attempting to visit the prison” and second, by appointing the very same persons who are under a cloud in Satyam as well as declared to be negligent by the ICAI’s own disciplinary committee in the GTB case, the incumbent president has raised the doubts in the functioning of ICAI in such critical matters. Crucially, what message is the ICAI sending to the outside world?

The concept of bias
The allegation of bias against a judge is as old as civilisation. It is a very thin line. But it does exist. Various courts over time have tried to explain and expand the concept. In the process judges are subjected worldwide to increasingly extracting standards over years.

One of the recent and well-discussed case relates to the extradition of General Pinochet from Britain in the House of Lords in 1998. Amnesty International (AI) filed an interlocutory petition along with a few other Human Right bodies and became an intervener in the case.

After the judgement was delivered, it was first alleged that the wife of one of the judges – Lord Hoffmann – was connected in some way with AI. Further, it was alleged by Pinochet’s lawyers that Hoffmann was a director of the Amnesty International Charity limited, a company incorporated to undertake charitable works under the UK law and linked to AI, the petitioner.

Confirming the same, AI further conceded that Lord Hoffmann had helped in the organisation in raising funds while claiming that that he was neither employed not remunerated directly or indirectly by AI.

Subsequently, Pinochet filed a petition seeking setting aside of the original judgement of Lord Hoffmann. Pinochet’s contention was not that Lord Hoffmann was biased but relied on the “fundamental” legal requirement that justice should be seen to be done as well as actually being done.

The House of Lord concurred with this proposition of Pinochet and concluded “The fundamental principle is that a man may not be a judge in his own case.” Further elaborating this concept, the House of Lords concluded that no judge should act in a manner by which “his conduct or behaviour may give rise to a suspicion that he is not impartial, for example, of his friendship with a party.”

It may be noted that Lord Hoffmann did not have derive pecuniary benefit. Yet the House of Lords was constrained to concede that Pinochet was right in his allegation of an apparent bias as it concluded that lord Hoffman in the instant was the alter ego of AI and hence in effect was sitting on judgement on his own petition.

Extrapolate this judgement to the instant case where the president of the ICAI seeks to meet the auditors of Satyam in a private manner. Surely, he was not leading a team of investigators to Hyderabad to interrogate the auditors of Satyam. And remember ICAI is a self-regulating authority and therefore requires a norm higher than for normal citizens.

But what can be done?
The damage is severe. And the credibility of ICAI has taken a serious beating. What makes the entire episode even more galling is the fact that when investigators even from Sebi had to take permission of the courts to interrogate the accused in the Satyam scam, the president of the ICAI (who is also an investigator like Sebi) seeks to meet them on a personal level.

When quizzed on the same by media, the president dismissed the same as stating that he only “attempted to meet” the auditors of Satyam. Further, he conceded that he even received the necessary permission but “could not” meet them. My investigations reveal that the president did “enter” the Hyderabad prison. The answer to the question whether he met them or not can only be brought about by a probe.

But ICAI need not wait for a RTI to be filed by someone else. That the president has indeed confessed to the media of having “attempted” to meet the persons whom he is legally probing at an official level squarely and clearly falls within the ratio of the judgement as explained above in the Pinochet case.

Of course, these are extracting standards. And it is expected in sensitive cases, as it is in the case of Satyam, every investigating officer must approach the case with outmost care. As in the case of Lord Hoffmann, the allegation against the president of ICAI is not one of bias, but one wherein there is a possibility of a bias. And that is enough to raise suspicions.

Strangely, in a profession where ethics is supposed to be non-tradable this act of the president of the ICAI is intriguing. Whatever be his motives behind the same, the act of the president of the ICAI has brought down the image of the profession as well as that of ICAI considerably. The hallmark of any profession lies in its ability to self-regulate – not place self above regulation. It is this test that the ICAI seems to fail.

And if the ICAI fails to investigate as why its president sought to meet the auditors of Satyam, the government must act forthwith. With acts like these by its president, the outcome of the Satyam probe by ICAI will surely be questioned at some point in time. Crucially, the ICAI is now open to severe ridicule by one and all.

But the ICAI may be spared such ignominy. After all, the Minister of Company Affairs too has met a global representative of the auditors of Satyam. According to press reports, this representative is supposed to have assured the minister of “all cooperation” (as if he had a choice) in the matter. If ministers personally meet persons who are being investigated by their ministry, the reader may well imagine the outcome of the probe by SFIO and ROC.

No wonder the ministry lacks the moral courage to even seek explanation from the ICAI. It is acts of men like these that dynamites institutions, derails investigations and makes people cynical on the outcome of a probe. No wonder, even after six weeks after the confession of Ramalinga Raju, the truth is still elusive and no one has any clear picture of how and why of the scam.

Be assured, with people like these it will be so even after six years.

Last modified on Sunday, 07 July 2013 07:36