ICAI also held that the suggestions already made by the institute to the government for making corporate governance effective in India addressed to a large extent the concerns emerging from cases of corporate failure in the US.

He said the need for setting up a PCAOB was felt in the US in the absence of any federal legislation and appropriate mechanism mandated under the law for disciplining erring auditors and a fraudulent management.

After the recent cases of corporate failure in the US, the much-advocated US GAAP in India came under close scrutiny and was exposed for its inadequacies. ''The accounting standards issued by ICAI in a way address adequately the shortcomings that have been pointed out. In generality, the US GAAP is rule-based and not based on principles, but the accounting standards in India are principle-based,'' Chandak said.

Getting the act together Besides recommending the revamping of the existing disciplinary mechanism, ICAI has already suggested to the Indian government that the system of joint auditors be introduced to increase the effectiveness of the audit. Some of the suggestions made by ICAI to enhance independence of auditors include fixation of auditor's remuneration in the Act itself rather than by the management.

Besides non-acceptance of a qualified audit report by the Registrar of Companies, the Securities and Exchange Board of India and other regulators, ICAI has also suggested that auditors' qualifications should be given effect to while determining the distributable profit for fixation of remuneration to directors and for declaration of dividends.

ICAI's suggestion regarding setting up of a PCAOB indicates that ICAI does not want, in any way, to control the accounting turf diluted. Notwithstanding its recommendations, the central government has decided to establish the Government Accounting Standards Advisory Board (GASAB) for the centre and states. This was revealed by Comptroller and Auditor General of India V N Kaul in the conference.

The board will be headed by the deputy comptroller and auditor general (accounts) and the members will be the controller general of civil accounts, the controller general of defence accounts, the financial commissioner (railways) and the additional secretary (budget).

For wider representation, the other members of the board will include the deputy governor of the Reserve Bank of India, the president of ICAI, the director general of NCAER and principal finance secretaries of four states by rotation.

Perils ahead Kaul said the main responsibility of the board is to formulate and propose standards that will improve transparency and usefulness of financial reports. Department of Company Affairs secretary Vinod Dhall said the government will not like to have excessive interference in the company affairs but liberalisation has necessitated a stronger role of government regulators.

The decision to set up an advisory board is welcome. It will be able to function as a watchdog body and there will be no convergence of interests as it often happens in the case of auditors and companies.

Now we can only hope that the board is also empowered to ensure that erring officials are pulled up before any misdeeds are created. Otherwise, it will end up as yet another toothless body.