While giving thrust on increased role of independent directors in listed companies and a clearcut definition of independent directors, the Naresh Chandra Committee on Corporate Governance has ruled out compulsory rotation of auditors.
The high level committee submitted its report to Finance Minister Jaswant Singh on Monday. Briefing reporters, Chandra defended the recommendations to go in for rotation of 50 per cent of audit partners (engagement team responsible for audit) every five years instead of going in for rotation of auditors. “Data from everywhere in the world shows that rotation of auditors have not helped in corporate governance and in fact, this lead to more possibilities of mistakes in the audit”, Omkar Goswami, chief economists CII and a member of the Committee said. It has suggested an overhauling of disciplinary procedures for accountants and has stated that the chief executive officers and chief financial officers should be responsible for certification of audited accounts.
While announcing the major recommendations, Chandra said public opinion would now be elicited for fine-tuning this comprehensive report and carry out necessary changes in the Companies Act and other statutes.
The Committee has also stated that at least half of the board of any listed company with paid-up capital and free reserves exceeding Rs 10 crore or turnover exceeding Rs 50 crore should comprise of independent directors. Audit committees of such companies should entirely comprise independent directors.
The committee has also endorsed the FM’s suggestions of a Serious Fraud Office to deal with large corporate frauds which have inter-departmental ramifications. However, the Committee did not mention any magnitude of the frauds which should be referred to SFO. Even on the issue of increased penalties for corporate offences, the report just made a passing reference.