The failure of Auditors to highlight the financial irregularities earlier is possibly the most egregious in this entire saga. Auditors are supposed to provide an independent oversight to financial statements. In this case, the issues were not raised until the financial statements for the year ended March 31, 2014, were published. The auditors qualified their audit report, but all this after much had been done.

Auditor rotation typically brings fresh oversight, enhancing the quality and objectivity of the audit process. But in USL’s case, this yielded no results. Moreover, the audit firm that conducted the forensic audit was the same as for the period during which the alleged irregularities occurred. Do shareholders rely on PricewaterhouseCoopers’ statutory audit or PricewaterhouseCoopers’ forensic audit?

The auditor community needs a greater fear of repercussions for conducting poor quality audits. Auditors today are answerable to no one other than their own standards and an ineffective review board of the Institute of Chartered Accountants of India. The quality of the audit usually gets established in hindsight — only if skeletons emerge from the cupboard. The Companies Act, 2013, allows a class-action suit against auditors. But the sections relating to the class-action suit are yet to be notified. At best, Sebi can push the company to restate its financials based on the audit qualification.

To expect Mallya to resign without a fight is idealistic, given that he may have a legally tenable position. But that is not what corporate governance is about. Good governance is about doing what’s right for all, and not sacrificing the gain of many at the altar of one. So, when the board asks Mallya to resign, he must because it is good for the company and its stakeholders. Now it seems that the battle is between two sets of ‘promoter’ shareholders.

But as events unfold, this will impact minority shareholders, sooner and harder than they expect. (Economic Times)