KARACHI: The appellate bench of the Securities and Exchange Commission of Pakistan (SECP) has come down with a heavy hand on the chartered accountants (ostensibly representing one of the scores of audit firms) who, according to the regulators’ findings, “gave opinion on fake and bogus accounts of ‘the company’”.

The errant company has not been named but the charges pinned on the firm are in regard to maintaining two books of accounts for the year ended June 30, 2011 which shows wide variations in the total turnover and net profit.

In one set of account books, the company posted total turnover at Rs2.14 billion while the figure on the other book appears at Rs454m. Similarly, the net profit amounts to Rs17.4m carried on the first balance sheet and Rs9.9m in the second.

The final findings have been forwarded to the Institute of Chartered Accountants of Pakistan (ICAP) for initiation of misconduct proceedings against the CA firms that appears to be at fault for a ‘grave offence’ of giving views on fake accounts.

It surely is a grievous fault and if so, perhaps naming and shaming the errant company would have been fit and proper. But it has to be seen how the ICAP deals with the situation. Yet if anyone expects the auditors to be hanged by a sour apple tree, they would be sadly mistaken.

This is neither the first nor the last instance of companies guilty of preparing two separate sets of accounts. The practice is as old as the profession itself and is prevalent throughout the world.

The auditors role in giving out an opinion on the accounts had fiercely come into public view in early 2002 in the ‘Enron debacle’ which had raised serious questions on the reputation of auditor Arthur Anderson — one of the world’s big-four audit firms at the time, which had put its signature on the Enron’s misleading accounts.

Anderson sank with its client Enron who lost billions of dollars — billed at the time as the biggest financial loss in US history. Granted that the chartered accountants have since made amends to regulate themselves more stringently throughout the world.

Yet, unless the names of errant firms are disclosed and directors who pay them the fees, hold the authority to appoint auditors, perception will continue to linger that many companies push the envelope to receive a ‘clean’ opposed to ‘qualified’ audit report.

Some people in the profession are likely to argue that auditors are appointed at the annual general meeting by the shareholders. But with the major stake holding vested with the directors, an ordinary shareholders can do little except raise a feeble voice. And it has long been established that it is not the job of the auditors to ‘detect fraud’.

They only express opinion on accounts that are laid before them by the directors. But ‘creative accounting’ is more prevalent in small firms and those outside the realm of regulators.

Most small businesses are known to maintain two set of books (often unaudited): one for the proprietor himself known in local dialect as “chopra” — to keep abreast with the true state of financial affairs and the other laced with ‘creative accounting’ meant mainly to present to the taxman.

Published in Dawn, March 6th, 2016