The Institute of Chartered Accountants of India has pushed back on most of the key provisions proposed in a bill, which has just received Lok Sabha assent and is pending approval in the Rajya Sabha.
The provisions aim to strengthen the existing disciplinary mechanism, reduce conflict of interest and allow for speedier disposal of misconduct cases even as instances of corporate accounting malfeasance are on the rise.
The Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Bill, 2021 was introduced in parliament in December 2021 and was subsequently referred to a parliamentary committee headed by Member of Parliament Jayant Sinha.
The committee has not only endorsed all the changes in the bill, but also underscored:
The need for competition in the profession by allowing multiple authorities for the qualification and licensing of accountants.
The setting up Institutes of Accounting, like IITs and IIMs, to raise standards of accounting education.
Both these are currently the sole domain of ICAI.
The Standing Committee on Finance report makes clear the rationale of the government for seeking these changes, why ICAI has opposed them and why the committee endorsed them.
Coordination Committee
Bill proposes: constitution of a coordination committee between the three institutes—ICAI, Institute of Cost Accountants of India and Institute of Company Secretaries of India—for the “development and harmonisation” of the professions.
The aim is to conduct quarterly meetings chaired by secretary of the Ministry for Corporate Affairs along with presidents, vice presidents, and secretaries of the three institutes.
ICAI objection: While ICoAI welcomed the proposal, ICSI suggested modifications to the wordings in bill.
ICAI objected to the constitution of such a committee saying it would intrude on its autonomy and hamper decision-making. A non-standing committee already exists and this can be made the standing committee, ICAI said.
Ministry Counter: The ministry supported a coordination committee for effective coordination of the functions of three institutes.
It pointed out that initiatives of the institutes do not receive support from each other as there is “no mechanism” of meeting their representatives.
ICAI's “non-standing” committee was formed informally and has no specific terms.
Committee verdict: Supported the amendment saying, “The coordination committee may act as the apex body for harmonious regulation, effective professional development, and objective disciplinary oversight of the three institutes…”
Board of Discipline & Disciplinary Committee
Bill proposes: amendment to include non-accountants in the two disciplinary bodies. These members to be proposed by the institute's council and selected by central government.
ICAI objection: ICAI raised “strong objection” to this provision. A non-CA member in the disciplinary committee or BoD would not have “in-depth knowledge” of accounting and audit standards and practices.
“The conduct of professionals should be judged by the professionals only,” it said.
According to ICAI, it is a member of the International Federation of Accountants, a global advocacy organisation for the accountancy profession, that requires it to comply with the organisation's ‘member obligations.' The institute didn't mention whether such an amendment would be in violation of these obligations.
Ministry Counter: The ministry cited that the amendments are in line with global best practices. There is “no government interference” as the nominees will be picked from a panel of members suggested by institutes, according to the ministry representative.
It pointed out that IFAC has 175 members in over 130 countries and the ‘member obligations' recommend independence in investigation and discipline functions. This independence, it added, is measured in “terms of participation of non-auditors in disciplinary and investigation functions”.
“The conduct of the chartered accountants who are auditors of public interest entities are regulated by independent regulators which are constituted by the government and in such bodies majority members are non-chartered accountants,” it said.
In India, National Financial Reporting Authority deals with cases of misconduct of auditors of publicly listed entities. The remaining auditors and CAs are under the purview of ICAI.
Committee verdict: The parliamentary committee agreed with the ministry and upheld the amendment without any modification.
Separation of Role of President and Secretary
Bill proposes: The amendment splits the role of the president as the head of the council and secretary, who will carry out administrative functions as its chief executive officer.
ICAI objection: ICAI said it is “unwarranted and contradictory in nature” and requested the committee to retain the existing provisions without any changes.
“As proposed sub-section (2C) provisions itself says that it shall be the duty of the president to ensure that all decisions taken by the council are implemented which means that this sub-section can effectively be implemented only when the president is executive head of the council,” ICAI said.
Ministry Counter: The ministry argued that the amendment will align the provisions with the other two acts— CWA Act and CS Act—that brought in this provision in 2006. The ministry cited the Institute of Technology Act, 1961 along with data from the U.S. and the U.K. where the head of the council and executive role is separated.
Committee verdict: The committee endorsed the amendment to bring “greater efficiency” in functioning and decision making of the council.
Timelines
Bill proposes: The amendments introduced specific timelines for disposal of disciplinary complaints. Timeline of 90 days and 180 days is proposed for disposal of disciplinary cases.
ICAI objection: ICAI argued that timelines should not be made part of the legislation but should be prescribed in rules to “maintain flexibility.” Principals of natural justice cannot be overlooked for the sake of expeditious disposal, it said.
Ministry Counter: The ministry observed that a “large number” of cases are pending for more than three years.
Per the data provided by ICAI, of the total 1,997 cases pending, nearly 33% cases are less than a year old, 38% are more than a year but less than three years old and nearly 29% are over three years old.
“It appears that the institute is agreeable that timelines may be provided though it does not want to commit on the particular timelines provided in the bill,” the ministry said.
Committee verdict: The committee upheld the amendment stating that introduction of timelines is “reasonable and justified.” It added that a time ceiling should be set to ensure the final disposal of cases do not exceed more than one year.
Liability of Firms
Bill proposes: The amendment provides for registration of firms and grants the institutes power to take disciplinary action against these firms, apart from their members.
Actions against the firm may include suspension or permanent removal of firms and fines.
ICAI objection: ICAI suggested that the amendment needs to be “re-worded” to include scenarios where one person is a partner in several firms, dissolution of a firm by guilty partner and reconstitution of a new firm or multiple partners found guilty for the first time, among others.
It also said that in case of permanent removal of the firm for misconduct of a partner, other employees will have to suffer “unnecessary hardship.”
Ministry Counter: The ministry clarified that the firm will be penalised only in case of repeated misconduct by a partner on more than one occasion in last five years.
After the Satyam scam, ICAI had, in 2010, proposed to the government to grant the institute the power to penalise firms in case of gross negligence or fraudulent activities by members of the audit firm.
Committee verdict: ICAI's stance on the issue is “unfounded” as the firms have a fiduciary relationship with their partners and are equally responsible for their deeds.
It endorsed the amendment adding that it hoped the changes are not “cosmetic” and would help in preventing financial scams.
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