Cost Of Reaudit and Redistribution of Re-stated Accounts: No Responsibility for Audit Committee?
February 11, 2011
Recently, the SEBI Committee On Disclosure and Accounting Standards(SCODA) recommended that “stock exchanges be authorised to ‘prima-facie’ act on any ‘material’ qualification made by auditor to seek a restatement of the company’s accounts.”(“Adverse auditor report to force a/c restatement”, Economic Times, February 8,2011).Or in short, listed companies will have to restate their accounts if the auditor comes up with adverse comments. And the cost of such (re)audit and the subsequent distribution of restated accounts will be borne by the CEO/CFO of the company.
While the decision on restatement and making CEO/CFO responsible is welcome, what about the responsibility of the audit committee? Audit committees are mandatory according to SEBI Clause 49 guidelines for corporate governance. And the Audit Committee has “responsibilities of overseeing the external audit, interact with the management to review the auditor’s findings and to decide on the steps that the management must take to address the auditor’s concerns, reviewing the financial information to be provided to shareholders and others” according to SEBI guidelines. Thus, before the information goes to the investors or public, the audit committee has to make sure that the information is right and correct. Then, why are audit committee members excluded from the responsibility of bearing the costs of re-audit and distribution of restated accounts and the responsibility solely assigned to the CEO/CFO? On the one hand Company Laws and /or SEBI are trying to strengthen the institution of independent directors(audit committees are expected to be constituted of majority independent directors) but on the other hand they are reluctant to assign responsibilities to them that must be considered as legitimate .
