Whenever corporate accidents such as IL&FS occur, an inevitable discussion follows on the role of both statutory as well as internal auditors. Since they are privy to a lot of information during the course of their audits, there is a consensus of opinion that their audit reports should be able to tell things as they are.
Unfortunately, audit reports in India are structured with a lot of disclaimers and worded so cautiously that the shareholder will not be able to form an opinion whether the financial statements present the actual picture of the company. For instance, in the IL&FS audit report, the auditor has drawn attention to the fact that a subsidiary of IL&FS has incurred large losses which could impact the continuance of the subsidiary as a going concern. However, this paragraph does not name the subsidiary nor the extent of losses —both of which are camouflaged in a Note on Page 316 of a 334-page document.
The auditors may claim that the issue at IL&FS was a case of cash flow mismanagement — which is not a part of their scope of audit. Critics of the auditors reject this by stating that the concept of true and fair and going concern would include basic concepts such as cash flow…
