‘CAs can detect illegal acts’

NAGPUR: There is an expectation gap between the society and auditors. The society expects that fraud should be detected during the course of an audit. The auditors feel they could have found the fraud. The audit process is deterrent for frauds. Still, if a fraud happens it must be identified and reported to stakeholders,” said CA Shriniwas Joshi wile delivering a lecture on ‘Audit of banks-fraud detection, prevention and reporting’ in a daylong seminar.
The seminar was organized by Nagpur branch of WIRC at Institute of Chartered Accountants of India, on Saturday.

He opined that all banks have an operational risk largely because the system has gaps in it and employees of the bank are aware of it. “Central government auditors are now pondering that it could have been possible to detect and avert the PNB fraud,” he said.

Joshi discussed the auditing standards which are internationally recognized. The latest auditing standards clearly define the role of an auditor, his independence, responsibility to a fraud and overall quality of the audit. “The auditor must identify the circumstances in which the law was broken and effect on financial statements. He must also find out whether the law was broken intentionally or not, if it was material or not and whether the management of the organization was involved,” said Joshi.

“The new standards also note that the auditor will be able to detect illegal and improper act but will not be able to discover material fraud even though he may possess excellent skills and expertise. However, it is still the prerogative of the auditor that the audit is conducted very carefully,” said Joshi.

He also briefly talked about Nirav Modi defrauding Punjab National Bank (PNB) of Rs13,000 crore. He said, “The PNB fraud was at a branch level and not higher than that otherwise the scam would have shaken the entire banking industry. The RBI said of the fraud that it was an operational risk due to delinquent behaviour of the staff of the bank and failure of internal control system.”

ends