57% investors say Big-4 Auditors have no credibility - IiAS survey
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According to a survey by Institutional Investor Advisory Services of 63 large investors and sell-side analysts numbering 89, conducted online between April 13-21, as much as 57 percent of each of them have found "the Big-4 audit firms having lost their credibility with investors and are therefore open to move beyond them if they were banned".
Between qualified and unqualified accounts, 73 percent support qualified accounts because they feel that at least they got to hear auditor concerns and if they asked for lean accounts, the risk was that the auditors would be muzzled.
It can be noted that ever since Satyam Computers scandal that came out in January 2009 the audit world, especially the Big Four, have been under fire from the regulators.
While market watchdog Securities and Exchange Board had banned PwC in 2018 from auditing listed companies for two years in the Satyam scam, the Securities Appellate Tribunal quashed the ban and the SEBI challenged it.
In June 2019, the Reserve Bank barred SR Batliboi & Company, an affiliate of EY, from carrying out statutory audit of commercial banks for a year after it found several lapses in the books of Yes Bank.
In the IL&FS case, Serious Fraud Investigation Office charged Deloitte Haskins & Sells and BSR and Associates (part of the KMPG network), for their failure in not disclosing the true financial health of IL&FS Financial Services and are looking at banning them from undertaking audits after they got some reprieve from the Delhi High Court.
On top of these, there have been frequent resignation of auditors, creating doubts on the quality of the audits that is being presented to investors and also many instances of divergent audit reports.
It can be noted that in the US, auditors cannot publish qualified results. But only 23 percent support moving to the American model by shifting our accounting standards also move in the same direction and insist on unqualified accounts.
This is despite 77 percent of them believing that "only unqualified accounts are true and fair" as one get to hear auditor concerns.
Meanwhile, the survey also has found that 78 percent of the investors, who normally clamour for dividends, in the poll preferring company retaining cash and fortifying their balance sheet this year as the economy is in shambles.
Similarly, 57 percent of them also see promoters subscribing to warrants as a sign of confidence in the company and its operations.
However, equity dilution remains a concern for investors with 46 percent of them being uncomfortable if dilution exceeded 5 percent without disclosure regarding how funds will be used and 30 percent putting this threshold at 10 percent.
A vast majority - as much as 87 percent - support dual class shares, a class of shares that doesn't find much support among investors in most other geographies.
As much as 87 percent are less supportive of promoter rights being embedded in the articles of association and periodically being voted on, as they have a more sanguine view about rights of private equity firms being embedded in the articles of association.#casansaar (Source - PTI, Money Control)
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