COURSE TITLE: Audit Risk and Control

COURSE CODE : AIS 5204

TOPIC : Audit is a Quasi-judicial Task

SUBMITTED TO: Abdul Alim Baser

Associate Professor
Department of Accounting and Information Systems
University of Barishal

SUBMITTED BY:
NAME : Fariha Ferdows Nitu
ROLL : 21 AIS 046
DEPARTMENT : Department of Accounting and Information Systems
SESSION : 2020-2021
SEMESTER : 2nd
YEAR : MBA

DATE OF SUBMISSION: 20 February, 2023

 Audit is a Quasi-judicial Task
An audit is the examination of the financial report of an organization as presented in the annual
report by someone independent of that organization. Auditing is the process of reviewing and
confirming our financial reports. Audits verify that we have created accurate and reliable
financial reports and that no fraudulent activities are happening within the business. There are
three main types of audits: internal, external, and government audits.
Quasi-judicial refers to a proceeding conducted by an administrative or executive official or
organization that is similar to a court proceeding example a hearing conducted by a human
rights commission. A court may review a decision arising from a quasi-judicial proceeding.
These bodies are established to reduce the burden of the courts. Quasi-judicial Bodies can
adjudicate and decide penalties on the guilty. Quasi-judicial Bodies powers are restricted to
specific domains. Examples would be Central Administrative Tribunal, Income Tax Appellate
Tribunal, Railway Claims Tribunal etc. Actually, a quasi-judicial body is non-judicial body
which can interpret law. It is an entity such as an arbitration panel or tribunal board, that can
be a public administrative agency but also a contract or private law entity, which has been
given powers and procedures resembling those of a court of law or judge, and which is obliged
to objectively determine facts and draw conclusions from them so as to provide the basis of an
official action. Such actions are able to remedy a situation or impose legal penalties, and they
may affect the legal rights, duties or privileges of specific parties.
There are some key differences between judicial and quasi-judicial bodies, in that:
• Judicial decisions are bound by precedent in common law, whereas quasi-judicial
decisions usually are not so bound;
• In the absence of precedent in common law, judicial decisions may create new law,
whereas quasi-judicial decisions must be based on conclusions of existing law;
• Quasi-judicial bodies need not always follow strict judicial rules of evidence and
procedure;
• Quasi-judicial bodies must hold formal hearings only if mandated to do so under their
governing laws, regulations or agreements;
• Quasi-judicial bodies, unlike courts, may be a party in a matter and issue a decision
thereon at the same time, depending on the specifically governing rules.
In general, decisions of a quasi-judicial body require findings of facts to reach conclusions of
law that justify the decision. They usually depend on a pre-determined set of guidelines or
criteria to assess the nature and gravity of the permission or relief sought, or of the offense
committed. Decisions of a quasi-judicial body are often legally enforceable under the laws of
a jurisdiction; they can be challenged in a court of law, which is the final decisive authority.
While a judge enjoys constitutional authority, an auditor enjoys none and there is a case for the
need to make this change. An auditor renders a skillful job of delivering an opinion on the true
and fair view of the financial statements of the audited entity. There are multiple points in the
conduct of an audit where application of mind, involves experienced and deep judgment. On
the one hand, there are the ‘facts’ of the case, there are the laws and standards and ‘regulations’.
An application of the regulations to the facts, gives rise to numerous onerous interpretations
involving complex issues of law, probability, precedence, intent, all supported by independence
and ethics. This gives rise to multiple set of interpretations and understandings of the same
facts and regulations. This is where judgment comes in. While the auditee may argue along one
line, the audit engagement team and experts may choose different lines, which is most often
the case. Based on all this, the auditor signing the financial statements has to make a final
judgment call and his ‘order’ is contained in the Auditors Report. It has been repeatedly said,
especially recently, that an auditor’s signature is relied upon by the whole nation, meaning to
say that the role of the auditor is crucial. Sadly, in all this, an auditor, who plays such a crucial
role, is treated like any other consultant employed by the company commercially, and there
ends the matter. This ostrich-like stance of the western rules of auditing that is the basis of our
present laws, defies the facts of the situation, that, in so far as the audit is concerned, the auditor
performs a quasi-judicial function, based on exercise of both personal skill and judgment,
involving a conscience-based duty, delivering grass-root governance to the entire economy in
the form of assurance arising from his integrity. Therefore, the present structure is far from
salubrious, just as making a judge subservient to the litigants, denying him the standing,
denying him the privileges, and the financial independence, will all compromise and throw into
jeopardy the legal system. The very same outdated framework of laws, which fails to protect
the standing and role of an auditor, however, expects that the auditor should be independent of
the auditee, without providing any support for it. It is all too obvious that the process, when
tested in situations, will continue to fail, as it is inherently fraught with inadequacies. No
number of sox and governance rules, can fix the problem, and having tried it for a few years,
we see that audit failures still continue to happen. Because the root cause of the failure, namely
the lack of standing and authority of an auditor as a constitutional authority similar to a judge,
has failed to be recognized. It is essential to empower the auditor and not keep him as a pawn
in a commercial game. We always said that auditing is a noble profession. There should be a
framework to support it. On a national scale, the legal system interfaces with perhaps 1 per cent
of the population. The legal system kicks in only when there is a complaint on a dispute. On
the other hand, nearly one hundred percent of the population is directly or indirectly, subjected
to an audit. Every business, and every charity, is audited. The audit is nearly omnipresent and
is a substratum of the nation. The objective of our times is to bring in good ethics, integrity,
and good governance. Indeed, this objective that is to be fulfilled is in the very motto of ICAB.
By re-positioning the status of an auditor, the reach of integrity and good governance will be
almost pushed to one hundred percent. This shows how vastly favorable the impact on the
population will be by a reform of this nature in fact so complete will be the roll out of the
process of bringing an undercurrent to all our affairs, that such a change will completely clean
up the country’s everyday standards of ethics at the grass root level. One can safely say that
this is in our national interest. It is therefore essential that the audit profession be rescued from
the bad framework of laws, and the chartered accountant is given a constitutional position
similar to a judge in so far as his function as an independent auditor of financial statements
goes.
Two other notable developments concerning Audit of Privatization are worth recalling since
they have profound impact on Privatization policy & issues. Disinvestment policy issues have
been subjected to a judicial review in the highest Court of the land, the Supreme Court who14,
categorically said that they would not go into the issues of policy. The Supreme Court decision
set several other significant pointers for the future. Regarding workers interest, the Supreme
Court concluded that safeguarding workers interest was one of the concerns of Government
and that efforts should be made to try and ensure that the disinvestment process did not
adversely affect the workers. The Court expressed its satisfaction about these int erests in case
of BALCO sale. The Supreme Court went into the question of transparency and held that
‘transparency does not mean conducting of Government business while sitting on the cross
roads in public. Transparency would require that the manner in which decision is taken is made
known. Persons who are to decide are not arbitrarily selected or appointed. On Reserve Price,
the Court held that ‘what has to be seen in exercise of judicial review of administrative actions
is to examine whether the reserve price which was fixed is arbitrarily low and on the face of it,
unacceptable’. The judgment contains some ‘landmark decisions’ which can guide audit also
in its future work. Some interesting Paragraphs from the Audit Reports that relate to
disinvestment of government companies are discussed below:
Disinvestment of Government Shareholding in selected Public Sector Enterprises during 1991–
92: C&AG’s Report on Disinvestment of Government Shareholding in selected Public Sector
Enterprises during 1991–92 is contained in Report No.14 of 1993 placed in Parliament on 7
May 1993. The main thrust of Audit Report on this disinvestment is summarized below: The
DPE recommended disinvestment of shares of 41 PSEs out of the 244 existing PSUs. They had
certain criteria for picking up the PSEs for disinvestment through which they excluded some
PSEs from the purview of disinvestment namely those which were under construction stage,
whose Net Asset Value was either negative and less than the face value of the shares, those
which were of insignificant size and where current level of profitability was very low, those
falling under section 25 of the Companies Act and those in whose shares of Government were
already below 60 per cent, etc. Certain PSUs which were in strategic sector like oil or those
that were meeting defense needs were also excluded. Out of these 41 PSEs, 10 were later
excluded and therefore finally 31 PSEs were considered for the first set of disinvestments. The
methodology to categorize these PSEs as ‘very good (8 companies), ‘good’ (12 companies)
and ‘average’ (11 companies) was adopted on the basis of Net Asset Value (NAV) per share
vis-à-vis face value of Rs.10. The PSEs whose NAV was Rs.50 and above per share were
categorized as ‘Very Good’ between Rs. 20 and Rs. 49 per share as ‘Good’ and from Rs.10 to
Rs.19 as ‘Average’. The valuation of shares of PSEs was done on the basis of guidelines for
such valuations formulated by a Committee under the Chairmanship of then Secretary, DPE.
Based on this, the NAV and the action to categories those into very good, good and average
was carried out in respect of PSEs. A Consultant was also appointed in 1991 by the Government
to advise on the pricing of the shares of the selected PSEs. The Government had decided that
the disinvestment would be carried out in two phases, the level of disinvestment would be from
5 to 20 per cent and in no case, Government shareholding would fall below 51 per cent, the
shares should be sold in the form of bundles consisting of 9 PSEs each (3 PSEs from each
category i.e., very good, good and average) through a process of bidding and finally shares
were to be sold to only mutual funds and investment institutions in the public sector who would
off-load these gradually into the market so that they assure a wider holding of ownership of
these shares. The reserve price of shares of each selected PSE was fixed by DPE in consultation
with the representatives of the PSEs concerned, Administrative Ministry of PSE and Ministry
of Finance in December 1991 for the sale of these shares of 31 selected PSEs. Capitalization
rate of 20 per cent’. However, during evidence before the PAC, it came out that the Cabinet
was not apprised in the Note submitted to them about the effect of the revised reserve price and
earlier reserve prices; hence, to that extent it was a flawed decision.
 References

Aiyar, Raghu. (2018, May 07). The auditor and the judge. Business India.

https://ksaa.global/wp-content/uploads/2019/05/The-Auditor-and-the-Judge-Business-
India.pdf

Kumar, Vijay. (2008). The Comptroller & Auditor General of India a Thematic History
1990–2007 (Vol. I).

https://cag.gov.in/uploads/cag_pdf/thematic_history/forward.pdf