In UK, the largest Accounting firms
have told the Financial Reporting Council (FRC)—the industry regulator - to
stop publicly "Naming and Shaming" firms right when the
investigations begin. It should happen only after misconduct is proven. They
not only damage reputations but also cause stress for Auditors - as per the
firms.
Even as FRC argued that this will
ensure transparency and robust action, they however are willing to review the
policy.
This sort of an approach is being
considered as more "Business friendly" and "pro-growth
approach".
Last year, the Financial Conduct
Authority (FCA)—which regulates banks, had to drop similar ideas of naming and
shaming. Accounting firms want the same thing to happen to them.
As per the firms, naming should happen
a. If extreme misconduct is found
b. At the end of the process
Our view:
While it may seem logical that
"Naming and Shaming" of accounting firms should be done after the
completion of the enquiry, and only if such firms are held liable, on the flip
side, investigations carried out in complete secrecy could raise lots of
questions on the approach and quality of investigations. However, the fact that
UK regulators are reviewing the proposal suggests that they are considering it.
However, a similar policy is not
advisable for India. India's corporate governance structure is in the nascent
stages, and accounting firms play an important role in this ecosystem as one of
the key gatekeepers. Indian accounting firms have only been held liable in
high-net-worth scams. So "Naming and Shaming" these firms are a way
to hold them accountable and ensure a fair and proper investigation is carried
out. This is also something that NFRA has been pushing for, and the proposal by
the UK firms will push back corporate governance reforms in India.
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Link - https://www.ft.com/content/cb6367e9-12b7-4ca5-9fed-c0cef327c643
