Sebi's forensic accounting team is a welcome move to expose frauds

    Kautilya listed 40 ways of embezzlement in the Arthashastra centuries before fictional detective Sherlock Holmes pursued forensics as a science. Even if it comes a century after Holmes, Sebi's move to form a separate forensic accounting team to detect fraudulent transactions of companies is welcome. An in-house team will strengthen investigation and force companies to improve their corporate governance. The regulator has reportedly been flooded with investor complaints accusing companies of rigging their financial statements. Forensic accountants are needed to unravel complex accounting jugglery hidden in financial statements. These auditors sift through numbers to sniff out corporate crime. And early warnings from them would enable the regulator to take pre-emptive action. The scam at the erstwhile Satyam Computer Services is a telling example of regulatory failure to detect a mammoth fraud early on. Forensic auditors were put on the job after the promoter B Ramalinga Raju confessed to fudging the IT firm's books.They had limited success, but enough to ask whether the country's premier investigating agencies — the Central Bureau of Investigation and Serious Frauds Investigation Office — and auditors have the expertise to unearth complex accounting frauds. So, Sebi's move to ready a cadre of forensic accountants with specialised skill-sets is a good idea. Surely, these auditors can identify, expose and prevent weaknesses in areas such as poor corporate governance, flawed internal controls and fraudulent financial statements. They can be useful in recommending auditing and accounting standards as well.
Globally, many regulators have dedicated teams of forensic accountants who work with other teams over routine financial disclosures. The Office of the Chief Accountant in the US Securities and Exchange Commission, for example, assists other departments in investigation and ensures that financial statements are presented fairly to investors. The forensic accounting team in Sebi can play a similar role. In any case, better late than never.