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RESEARCH
includes research articles
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resolution of managerial and
academic issues based on
analytical and empirical or
case research
Statutory Auditors’
Independence in India:
An Empirical Analysis
from the Stakeholders’
Interest Perspective
VIKALPA
The Journal for Decision Makers
41(1) 28–50
© 2016 Indian Institute of
Management, Ahmedabad
SAGE Publications
sagepub.in/home.nav
DOI: 10.1177/0256090915626791
http://vik.sagepub.com
Mitrendu Narayan Roy and Siddhartha Sankar Saha
Executive
Summary
A business projects its financial performance through its financial statements. An
audited financial statement is considered to be genuine and dependable by the stakeholders of the business. Therefore, statutory auditors should be self-regulating so that
they can perform their professional role without being influenced by the management.
The current regulatory framework for statutory auditors defines independence requirement for a statutory auditor in a professional engagement, points out circumstances
that may create threats to independence and also proposes some measures to safeguard
the same. However, in recent corporate accounting scandals, company’s failure led to
devastating cost to the stakeholders, and audit failure was identified to be one of the
causes behind them. Following investigations also sensed possible impairment of statutory auditors’ independence in those scams.
In this backdrop, based on the existing literature on this subject, this article identifies
variables influencing positively or negatively statutory auditors’ independence in
their professional engagement. Opinions of statutory auditors and select other groups
of respondents were collected. Most of the respondent groups believe that statutory
auditors fail to detect irregularities in financial books due to their lack of independence
and professional scepticism as was observed in this study. Several legal case decisions also
support this finding. A long association between a statutory auditor and a client is one of the
major reasons behind statutory auditors’ lack of independence. Opinions of respondents
supported by applicable legal case decisions also proved that lax disciplinary measures and
inadequate inspection framework caused audit failures in many recent cases.
KEY WORDS
Statutory Auditors’
Independence
Stakeholders’ Interest
One-way ANOVA
Tukey’s HSD
28
This study also analyses a significant difference of opinion among respondent groups
and identifies the groups having a similar line of thought for each variable. One-way
analysis of variance (ANOVA) and Tukey’s honestly significant difference (HSD) test
were conducted, respectively, for these purposes. The result shows that significant
differences exist among the respondent groups for most of the variables. Moreover,
corporate executives have shown a significant difference of opinion from professional
accountants, especially on the issue of statutory auditors’ negligence. While corporate
executives believe statutory auditors are negligent in their duty, professional accountants
oppose their views. Applicable legal case decisions also support such findings. Investors
have shown similar views in line with academicians and students.
STATUTORY AUDITORS’ INDEPENDENCE IN INDIA: AN EMPIRICAL ANALYSIS FROM THE STAKEHOLDERS’ INTEREST PERSPECTIVE
T
he financial result of a business enterprise is
projected through its profit and loss account,
balance sheet and other financial reports
prepared according to the applicable generally accepted
accounting principles (Banerjee, 2002). Stakeholders
of the business make their financial judgement based
on these statements. But sometimes immoral objectives of showing an inflated financial position lead the
management of a company to manoeuvre its financial statement. It sometimes even calls for the company’s termination impacting most of its stakeholders.
Therefore, the legitimacy and dependability of the
financial statement should be certified by a proficient
authority external to the business enterprise. Statutory
financial auditors carry out this role. They are professional accountants appointed to check the financial
statement of the company and express their opinion on
the working affairs of the business (Gupta, 2005). Apart
from being competent to do their job, they should be
ethical towards their professional obligation. Therefore,
independence of professional accountants serving
as statutory auditors are of supreme importance to
the stakeholders who take financial decisions based
on their report. With a view to supporting statutory
auditors to perform their responsibility with required
integrity and objectivity, governing regulatory bodies
in a country issue certain regulatory pronouncements
(Bakshi, 2000). In India, chartered accountants execute
the function of statutory financial auditors. With a view
to ensuring their independent operation as statutory
auditors and achieving quality audit from them, their
governing regulatory bodies (e.g., Institute of Chartered
Accountants of India, 2009, 2010; Ministry of Corporate
Affairs, 2013; Securities Exchange Board of India,
2013) issue certain regulations (e.g., Code of Ethics
for Professional Accountant, Standards on Auditing,
Standard on Quality Control, Companies Act, 2013,
and Listing Requirements) that clarify their independence requirement as a statutory auditor (Ghosh, 1999).
However, even with the existence of a strong regulatory
structure, statutory audit failure has been witnessed in
most of the accounting scandals in different countries
(e.g., Enron Corporation Ltd. and Parmalat SpA).
Statutory auditors in those companies failed to identify
and report accounting wrongdoing in the company’s
financial statement that resulted in the company’s failure
affecting the country’s economy and a huge segment
of society. Ensuing investigation also proved statutory
VIKALPA • VOLUME 41 • ISSUE 1 • JANUARY-MARCH 2016
auditors’ close nexus with management in some of those
scandals (Copeland, 2005). Accounting scandal at Satyam
was a classic example of statutory audit failure due to a
lack of independence (Banerjee, 2011). In this company,
statutory auditors certified inflated financial statement
of the company as free from irregularities. They also
failed to detect control deficiencies. After the revelation
of the scandal, it was proved in the court of law that
statutory auditors did not comply with the applicable
independence requirement and aided management
to commit the accounting fraud (Central Bureau of
Investigation, Hyderabad vs Subramani Gopalakrishnan,
2011). This had put a big question mark on the integrity
of the accounting and auditing profession. In this
backdrop, this article seeks to analyse the perception of
statutory financial auditors and respondents from other
occupational groups having knowledge on this issue.
A SURVEY OF LITERATURE
Statutory auditors’ independence is a matter of huge
significance in ensuring consistency and validity of
financial statements prepared by a company’s management. However, recent corporate accounting scandals
have reflected statutory auditors’ lack of judgement and
scepticism in the audit of those companies. Following
investigation also proved that statutory auditors were
not completely independent from the management in
those audit engagements. This situation brings about
a great deal of concern among notable researchers all
over the world. Extensive research has been conducted
on this issue, causes behind the lack of independence of
statutory auditors have been identified, and solutions
have been proposed so that statutory auditors’ independence could be safeguarded for the protection of
stakeholders’ interest.
An auditor plays an important role in the validation
of a financial statement. Integrity, objectivity, and
independence of a statutory auditor influence the
utility of the financial statement (Saxena, 1993). As
stakeholders take their financial decision based on
the judgement of the auditors (Chakraborty, 2004), the
latter should consider their interest with top precedence
(Mehta, 1998; Pyne, 1995). Therefore, statutory auditors
are an important segment of the entire corporate
governance mechanism of the company (Garg, 2001).
In some studies, scholars provided a historical count of
the evolution of professionalism and independence of
statutory auditors (Freier, 2004). Several studies have
covered the stories of recent corporate accounting
frauds (Enron, Satyam, etc.) and proved statutory
29
auditors’ lack of independence in those scandals
(Arens & Elder, 2006; Copeland, 2005; Pinto & Pinto,
2006; Thibodeau & Freier, 2010). Whenever a corporate
accounting scandal occurs because of a false financial
statement, auditors are considered to be one of the
main parties behind the fraud (Crutchley, Jensen,
& Marshall, 2007; Jennings, 2003). Several authors
have analysed different corporate accounting scam
cases and identified several intimidation to statutory
auditors’ independence. The appointment procedure
(Ghosh, 1999) and the provision of non-audit services
(Beaulieu & Reinstein, 2006; Freier, 2004) are two such
examples. We have reviewed several perception-based
studies that ratify the conceptual studies. Safeguards to
these threats offered by an audit client, profession or
audit firm are also analysed in these studies (Fearnley,
Beattie, & Brandt, 2005).
Some researchers have critically analysed the usefulness of the present regulation in protecting statutory
auditors’ independence (Chakrabarti, 1996; Narielvala,
1998; Rossouw et al., 2010; Shah, 2000; Singh, 2009).
Compliance with applicable regulatory framework
helps a statutory auditor to gain public trust (Bakshi,
2000). However, in some studies, it has been proved that
the present legal structure is insufficient to address the
issue of statutory auditors’ independence (Dastur, 1998;
Gowthrope & Blake, 1998; Maurice, 1996). Regular alteration in the current regulations and their appropriate
execution could protect statutory auditors’ independence (Rao, 2009). Non-compliance with applicable regulations brings punitive measures against statutory auditors. Penal sanction against statutory auditors is diverse
in different countries. However, the presence of a strong
disciplinary framework deters an auditor from compromising his/her independence (Bakshi, 2000). The enactment of Sarbanes Oxley Act, 2002, following the Enron
scandal is considered to be a significant regulatory milestone in the history of statutory auditors’ independence
(Arens & Elder, 2006). Several perception-based studies
have been carried out on the effectiveness of SOX Act,
2002. Subject to certain reservations, most of the authors
have concluded that this new Act is very effective in
improving statutory auditors’ independence and corporate governance structure of a company (Carillo, 2008;
Hill, McEnroe, & Stevens, 2005; Rezaee & Riley, 2002).
After the enactment of SOX Act, 2002, the importance
of an oversight authority is deeply realized. Oversight
bodies like Public Company Accounting Oversight
Board (PCAOB) supervise audit operations in a country
and decrease the scope of any possible nexus between
statutory auditors and management (Godbole, 2004).
30
In the present-day environment, when statutory auditors
are extending their operations in global frontiers, several
authors have proposed the convergence of individual
code of ethics of the individual countries and the enactment of a uniform code of conduct all over the world
to help statutory auditors avoid any ethical dilemmas
in cross-country audit engagements (Pendergast, 2002;
Vittal, 2000).
Apart from regulatory measures, another important
safeguard to statutory auditors’ independence is the
audit committee. It is an important board committee
with majority of members as independent directors and
is responsible for controlling issues that have significant
influence on statutory auditors’ independent operations
(Godbole, 2004). Therefore, independence of the audit
committee from the management can go a long way
towards the effective implementation of independence
requirement for statutory auditors (Tipgos & Keefe, 2004).
External review of the audit work is another important
safeguard to statutory auditors’ independence. An
independent third party makes a statutory auditor more
careful about his/her independence obligation. In India,
it is known as the peer review process. Studies have also
compared external review in India with that of other
countries of the world (Gerotra & Baijal, 2002).
All these mechanisms discussed earlier in the article
externally influence statutory auditors’ independence. But until the statutory auditors internally realize
the need for these independence obligations, effective
results cannot be obtained. Only ethics and values can
internally guide a person to attain a cherished result.
Therefore, ethics has always remained an important
area of research under this theme. Some researchers
focused on the concept of ethics, its evolution, and
different ethical concepts proposed by ethical leaders
of our society (Duska, Duska, & Ragatz, 2011; Maurice,
1996) while others conducted several perception-based
studies with advanced statistical tools to analyse ethical
dilemmas faced by statutory auditors and the means to
resolve them (Jeffrey, 2004; Roy, 1997; Zadek, Pruzan, &
Evans, 1997). An ethical audit gives a statutory auditor
enormous contentment which cannot be measured in
monetary terms (Chauhan & Gupta, 2007). However,
in the present sociopolitical environment, ethics and
values are incessantly decreasing not only in auditing
profession but in every sphere of our life (Ghosh,
1999; Ray, 1995). Tainted family values, ethical sense
and cultural framework are the main reasons behind
recent ethical failures. Accounting regulators, business,
audit firms, and academic institutes should work hand
STATUTORY AUDITORS’ INDEPENDENCE IN INDIA: AN EMPIRICAL ANALYSIS FROM THE STAKEHOLDERS’ INTEREST PERSPECTIVE
in hand to provide a moral framework for statutory
auditors (Copeland, 2005; Mayper et al., 2005). Ethical
orientation of a person in this profession can get better
only through education, practical training, and orientation programmes.
Some authors affirmed that the present curriculum for
professional accountants was not sufficient to improve
their ethical orientation (Ravenscroft & Williams, 2004).
Therefore, a complete modification of the accounting
course was proposed with an emphasis on ethics (Arens
& Elder, 2006; Banerjee, 1993; Chakraborty, 2008; Earley
& Kelly, 2004; Ghaffari, Kyriacou, & Brennan, 2008;
Gowthrope & Blake, 1998). Criminology, psychology,
and other behavioural sciences should also come under
the purview of the current curriculum of professional
courses (Curtis, 2008). Based on different statistical
methods, the impact of an accounting scandal on the
moral thinking of prospective statutory auditors was
also analysed. It was thus found that practical training
on ethical needs would help statutory auditors to
understand the regulations with a practical approach
and to resolve their ethical dilemmas in professional
engagements (Bakshi, 2000; Lomax, 2003).
In recent times, researchers have identified some
emerging areas in auditing that could play an important role in reducing accounting scandals. One such
area is forensic audit where statutory auditors along
with experts from other professions investigate the
financial misdeed by a company and propose solutions.
Forensic audit is also gaining importance in the current
accounting curriculum (Curtis, 2008).
RESEARCH GAP
From the above discussion, it is clear that researchers,
who have contributed their considerate opinion on this
issue, identified specific threats and safeguards to statutory auditors’ independence. Ethics and values are
important considerations for independent operation of
statutory auditors. Therefore, many studies have incorporated ethics as an important determinant of statutory auditors’ independence. Several perception-based
studies on independence or ethics with complex statistical techniques have been reviewed as well. Studies
reviewed so far have only dealt with specific issues
that positively or negatively affect statutory auditors’ independence. There is, however, an absence of
a comprehensive discussion taking into consideration
all the issues together. Besides, the perception of only
statutory auditors has been considered so far. But the
VIKALPA • VOLUME 41 • ISSUE 1 • JANUARY-MARCH 2016
opinion of other respondent groups that by virtue of
their occupation are closely related with the statutory
audit process or are in a position to give an opinion on
this issue has not been considered in those studies. This
gap in the existing literature prompts us to take up this
current study and empirically analyse the opinion of
statutory auditors and other groups of respondents on
statutory auditors’ independence for protecting stakeholders’ interest.
OBJECTIVES OF THE STUDY
The major objectives of the study are as follows:
1. To analyse the overall opinion of sample respondents from each occupational category on select variables influencing statutory auditors’ independence.
2. To empirically analyse the significant difference in
the opinion of select occupational groups for those
variables.
3. To statistically group individual respondent categories for select variables based on a significant difference of opinion among them.
4. To draw a suitable conclusion on statutory auditors’
independence for protecting stakeholders’ interest.
RESEARCH METHODOLOGY
Data
This study is exploratory in nature and is based on both
primary and secondary data, the latter being collected
from books, journal articles, newspaper articles, and
legislations. Several legal case decisions in India
especially of the Supreme Court of India involving
statutory auditors’ duties and responsibilities in
different companies were also considered, as they have
direct bearing on the interpretation of various laws,
rules, and regulations governing statutory auditors’
independence. Primary data were collected from
Kolkata, West Bengal, during June 2011 to December
2013 through pretested, close-ended, and structured
questionnaire. Through convenience sampling (Ho,
Ong, & Seonsu, 1997), respondents were selected from
different occupational groups, for example, chartered
accountants, cost and management accountants,
academicians, students, investors, and corporate
executives. The rationales for selecting individual
respondent categories and profile of respondents are
given in Tables A1 and A2.
31
Based on books, research papers and judicial case
decisions, 25 variables were selected. These variables
were converted into statements and incorporated in
the questionnaire with Likert 5-point scale (5 representing ‘strongly agree’ (SA), 4 representing ‘agree’
(A), 3 representing ‘neutral’ (N), 2 representing ‘disagree’ (D), 1 representing ‘strongly disagree’ (SD))
(Kothari, 2010).
the opinion of a particular respondent group. As far
as the second objective is concerned, one-way analysis of variance (ANOVA) was conducted to analyse
significant difference of opinion among respondent
groups. Finally, Tukey’s honestly significant difference
(HSD) test was conducted in order to group individual
respondent categories into homogeneous subsets. SPSS
17.0 was exercised for the purpose of analysis.
Analysis of Collected Data
Selection of Variables
The mean sample score of each respondent category for each variable was calculated in addressing
the first objective of the study. Mean scores represent
From the literature survey, variables that positively or
negatively influenced statutory auditors’ independence
in a professional engagement were identified (Table 1).
Table 1: Variables Influencing Statutory Auditors’ Independence
Statements
Rationale for Variable Selection based on Secondary Data and Legal Cases Decision at the Judiciary
V1
Negligence of Statutory
Auditors
Stakeholders of a business depend upon statutory auditors’ opinion. Hence, negligence on the part of statutory
auditor is a contravention of Clauses 6, 7, and 8 of Part I of the 2nd Schedule of Chartered Accountants Act,
1949 (Ministry of Corporate Affairs, 1949).
Cases at judiciary from long past have shown instances of statutory auditors’ negligence (refer to Tri-Sure India
Ltd. vs A.F. Ferguson and Co. and Others, 1985; Council of Institute of Chartered Accountants of India vs Shri
S.N. Sachdeva, 2011; Institute of Chartered Accountants of India vs Rajesh Chadha, 2012; Subrata Chattoraj vs
Union of India & Others, 2014). Court judgements in all of these cases proved gross negligence by statutory
auditors.
V2
Sufficiency of Regulatory
Framework
Insufficiency in regulatory framework often fails to redress statutory auditors’ ethical dilemma which ultimately
lead them to compromise their independence. In our country, regulatory framework comprising Companies
Act, 2013, Chartered Accountants Act, 1949, and Code of Ethics provide sufficient regulatory support to statutory
auditors’ independence.
Sufficiency of regulatory framework was a governing issue of statutory auditors’ independence in an old case of
Fraser and Ross, Chartered Accountants vs Sambasiva Iyer and Others (1968).
V3
Lack of Enforceability of
Regulatory Framework
If regulatory framework governing statutory auditors is not properly enforced, their independence is not
protected. In recent cases, relating to statutory audit failure, it was observed that statutory auditor did not
comply with applicable SAs while performing audit engagements (Price Waterhouse & Co. vs Securities and
Exchange Board of India, 2010).
There was also contravention of Chartered Accountants Act, 1949 (refer to Council of Institute of Chartered
Accountants of India vs Praveen Kumar Katyal, 2011) and Code of Ethics (refer to Yogeshwari Kumari vs
Institute of Chartered Accountants of India, 2010). All these cases certainly raise our concern on appropriate
enforcement of existing regulation.
V4
Procedure of Appointment
of Statutory Auditors
If management of the audit client controls appointment of statutory auditors, they could easily be intimidated to
give opinion in management’s favour.
At Satyam, there was deficiency in control structure (refer to Subramani Gopalakrishnan vs Institute of
Chartered Accountants of India, 2011). It allowed management to control the appointment procedure.
V5
Appointment by
Independent Authority
In government companies, appointment of statutory auditors is made on recommendation of the government
(refer to Gurugobinda Basu vs Sankari Prasad Ghosal, 1963). In such companies, possibilities of management’s
influence in appointment procedure are quite less. Appointment made by an independent regulatory authority
could safeguard statutory auditors from threats arising out of appointment procedure.
V6
Long Association between
Statutory Auditor and Client
Long association between statutory auditor and client creates a nexus between them. In recent cases, statutory
auditors were associated with their client for a long period. In Subramani Gopalakrishnan vs Institute of
Chartered Accountants of India (2011), the auditors were associated with the company for a period of 7 years.
Now, as per the recent Companies Act, 2013 which states that individual auditors are not allowed to be
associated with client for a period beyond 5 years, it was a clear contravention of existing regulation.
V7
Rotation of Statutory Auditor Continuous rotation of auditor could break the nexus created due to long association. Recent provisions in
Companies Act, 2013 could reduce familiarity threats to statutory auditors’ independence.
Table 1 continued
32
STATUTORY AUDITORS’ INDEPENDENCE IN INDIA: AN EMPIRICAL ANALYSIS FROM THE STAKEHOLDERS’ INTEREST PERSPECTIVE
Table 1 continued
Statements
Rationale for Variable Selection based on Secondary Data and Legal Cases Decision at the Judiciary
V8
Maximum Limit of Audit Fee
High remuneration makes a statutory auditor financially dependent on the management. A limit to such
economic dependence is therefore needed. In the legal case Gurugobinda Basu vs Sankari Prasad Ghosal
(1963), auditors received remuneration from two companies which were at conflicts of interest between
themselves. It was a contravention of Companies Act, 1956.
In Subramani Gopalakrishnan vs Institute of Chartered Accountants of India (2011), statutory auditors received
exorbitant fees for audit and non-audit services.
In the legal case Shri Mahendra Kumar Mahajan vs Institute of Chartered Accountants of India (2012), auditors
received fees both as auditors and members of management. All these real life case examples prompt us to
propose a maximum limit to the total remuneration that can be paid to an auditor.
V9
Close Relationship between
Statutory Auditor and
Management
Close relationship with management members often influence an auditor to issue a clean report without
undertaking proper audit procedure. There are several instances where auditors were closely related with
members of the client company.
In the legal case Shri Mahendra Kumar Mahajan vs Institute of Chartered Accountants of India (2012), the
partner of the accounting firm was also in the managing board of the client. In the legal case, Yogeshwari
Kumari vs Institute of Chartered Accountants of India (2010), the auditor was also the director of the company.
It was a contravention of Code of Ethics.
V10
Provision for Non-Audit
Services
Certain non-audit services by statutory auditors sometimes influence independent review process. In several
recent cases, it was observed that auditors provided consultancy services to the company contravening the code
of ethics, for example, Institute of Chartered Accountants of India vs L.K. Ratna & Others (1986); Talluri Srinivas
vs Institute of Chartered Accountants of India (2010); Council of Institute of Chartered Accountants of India vs
Praveen Kumar Katyal (2011).
In some other legal cases, statutory auditors provided certain services without taking permission from the
professional institute which held them responsible for contravening Chartered Accountants Act, 1949. Other
such cases are: Fraser and Ross, Chartered Accountants vs Sambasiva Iyer and Others (1968); N.K. Gupta vs
Institute of Chartered Accountants of India (1990); Council of Institute of Chartered Accountants of India vs Shri
S.N. Sachdeva (2011), etc.
V11
Prohibition of Non-Audit
Services
Complete prohibition of non-audit services by statutory auditors could be solution to the aforesaid problem. Recent
Companies Act, 2013 have specified some services which could not be provided by an auditor to its audit client.
V12
Strong Disciplinary
Framework
Strong disciplinary framework discourages statutory auditors to get involved in professional misconducts.
Disciplinary Committee of ICAI decides on the disciplinary sanction against a statutory auditor based on severity
of his crime. Professional misconduct as defined in Chartered Accountants Act, 1949 attracts disciplinary
sanction.
In India highest disciplinary sanction was provided to statutory auditors at Satyam. It was imprisonment and
cancellation of membership certificate (refer to Central Bureau of Investigation, Hyderabad vs Subramani
Gopalakrishnan, 2011). However, in most of the cases, statutory auditors are either reprimanded (Council of
Institute of Chartered Accountants of India vs Shri S.N. Sachdeva, 2011) or their names are removed from the
list of practicing members for a period ranging from 1 to 3 years (refer to Institute of Chartered Accountants of
India vs Rajesh Chadha, 2012; Council of Institute of Chartered Accountants of India vs K.K. Gupta, 2008).
In some of these legal cases, sometimes the defendant auditor files a petition against the punitive action taken
against them. Based on merit of the case, the court may approve or dismiss their appeal. Hence, a strong and
effective disciplinary framework is a prerequisite of independent audit.
V13
Strengthening Audit
Committee
Audit Committee is an independent board committee nominated by the shareholders to look after their interest
by keeping a constant oversight on statutory auditors’ selection and performance. Strengthening competence
and independence of this committee will safeguard statutory auditors’ independence.
In some known scandals (refer to Subramani Gopalakrishnan vs Institute of Chartered Accountants of India, 2011),
internal control system was not sufficient and the Audit Committee failed to perform its role. The result is well
known to us. Hence, a strong Audit Committee is also required for helping auditors in independent audit process.
V14
Effectiveness of Peer Review
Committee
Compliance of technical and ethical standard in an audit engagement is reviewed by a select member of the
Peer Review Committee under Council of Chartered Accountants of India. This mechanism enforces existing
regulation on statutory auditors’ independence. In some cases, regulatory authorities in India conduct separate
audit in the company’s books and find out the lacuna in existing audit procedures.
In the legal case Partha Ghosh vs Institute of Chartered Accountants of India (2009), special audit done by RBI
identified some irregularities which could not be found by the auditors.
Though peer review enforced by ICAI is a comprehensive mechanism, in legal case P. Rama Krishna vs Institute
of Chartered Accountants of India (2010), it was observed that both audit partner and concurring review partner
in the client company was from the same accounting firm. Hence, the review was not an independent review.
Effectiveness of peer review mechanism is thus an important tool to ensure statutory auditors’ independence.
Table 1 continued
VIKALPA • VOLUME 41 • ISSUE 1 • JANUARY-MARCH 2016
33
Table 1 continued
Statements
Rationale for Variable Selection based on Secondary Data and Legal Cases Decision at the Judiciary
V15
Modification in Company
Law
Recent introduction of Companies Act, 2013 incorporates certain new provisions aiming at protection of statutory
auditors’ independence. Its provisions relating to rotation of auditors, non-audit services are some of them.
V16
Establishment of Oversight
Authority
Recent Companies Act, 2013 mandates establishment of National Financial Reporting Authority (NFRA) which,
with many of its other activities, is supposed to oversee audit operations in the country. It is expected to enforce
regulatory pronouncements on statutory auditors’ independence.
V17
Need for Ethical Education
Ethical education in every sphere of life could help a person to understand the true meaning of ethics and its
impact on their decision making (Mayer et al., 2005).
V18
Incorporation of Ethics in
Accounting Curriculum
Inclusion of ethics in professional accounting curriculum could help a statutory auditor to understand the
ethical implication of their every professional decision (Ghaffari et al., 2008).
V19
Need for Awareness
Programme by ICAI
Awareness programmes on ethics could facilitate a practical approach to the ethical knowledge. This sometimes
may prove to be beneficial in resolving ethical dilemma.
V20 Need for Orientation
Programme by ICAI and
Academic Institute
A constructive collaboration between professional bodies and academic world could facilitate exchange of
ideas in a wide spectrum. It will result in improvement in accounting curriculum and ethics will get a special
importance in it (Copeland, 2005).
V21
Practical training on ethics directly addresses ethical problems faced by a statutory auditor. Legal case Fraser
and Ross, Chartered Accountants vs Sambasiva Iyer and Others (1968) shows that lack of statutory auditors’
independence was mostly due to statutory auditors’ lack of ethical awareness which could be improved through
broad academic training.
Need for Practical Training
to Resolve Ethical Conflict
V22 Rewarding Statutory
Auditors for Ethical Practice
If statutory auditors get rewarded for ethical performance, it might provide other auditors some impetus to be
ethical in their future engagements.
V23 Uniformity of Code of
Conduct
In cross-country audit engagements, auditors falter in their ethical duty by using the loopholes of regulatory
mismatch in two countries. This situation could be avoided if regulatory framework across the globe were
uniform (Vittal, 2000).
V24 Lucidity in Audit Report
Most of the investors do not have technical knowledge in the fields of accounting or auditing. Hence, Au