CA Institute says data can be given only at auditee’s behest, or at a regulator’s request

Credit rating agencies may hitherto not find it easy to get information about a company or its management from the statutory auditor of the entity concerned. This is because the CA Institute has clarified that its members are not permitted under the Chartered Accountants Act and the Code of Ethics to share client information with credit rating agencies.

The latest ICAI clarification to the queries from its members is expected to put corporates in a spot and force them do tightrope walking as they will have to balance their relationship with the statutory auditor and the credit rating agency, said corporate observers.

However, the statutory auditor can give feedback to a credit rating agency if explicitly permitted to do so by the client concerned, the Institute of Chartered Accountants of India has said. Any failure to comply with this clarification will be treated as “professional misconduct” and can, therefore, invite disciplinary proceedings, the audit regulator has cautioned.

Code of ethics

Speaking to BusinessLine, ICAI president Atul Kumar Gupta said that chartered accountants under their code of ethics are not allowed to share data of their clients unless the client permits it or when two exceptions come to play. Even where the client does not expressly approve sharing of information, the two exceptions are that the auditors can share if the law of the land requires them to do so or any regulator directly asks the auditor for information.

Feedback mechanism

Gupta said that SEBI had recently issued an advisory and asked credit rating agencies to get a feedback from the statutory auditors. “We are now saying that this feedback mechanism is not falling under the two exceptions that are there in the Code of Ethics. So, either SEBI should say that this is under a law or if SEBI itself asks, our members can directly give the data or feedback to the regulator. But not to a third party like a credit rating agency,” Gupta said.

Gupta said the ICAI will in the next few days reach out to SEBI to discuss the issue and see how the matter can be sorted out.

‘Not duty bound’

Commenting on the latest ICAI clarification, Amarjit Chopra, former ICAI president, said: “Statutory auditors are not duty bound under law to share information with credit rating agencies. They are duty bound to submit information to regulators like NFRA or courts or the CBI as they (the agencies) have power under law. But credit raters are private agencies. It should also be allowed only when the client permits.”

Sanctity of audit

Ashok Haldia, a former Secretary of CA Institute, said that auditors during the course of an audit have unrestricted access to documents and information of the clients. “Allowing the auditor to share information with other agencies these or their assessment, on one pretext or other , without the consent of the auditee, would put at risk the sanctity of audit. The exceptions are, however, when under any law the auditor is required to share information or his findings. Even otherwise rating agencies have access to clients for information. It is desirable that they undertake an independent exercise and based on that make their own assessment on rating,” he said.

Source : https://www.thehindubusinessline.com/money-and-banking/auditors-cannot-share-client-info-with-credit-raters/article33531882.ece