CA Amresh Vashisht
Our profession did not anticipate much of what has happened after Satyam, which has sufficiently concerned about the growing loss of credibility of the profession. Everyone is talking about the role and responsibility of Auditors. Company law and income tax are the two main resource legislation, which decide the fate of the profession, but now both the legislation are looking towards the profession with red eyes. The latest income tax amendments in section 288 regulate the appearance by “authorized representatives” before any income-tax authority or the Appellate Tribunal. Sub-clause (viii) of the Explanation of section 288(2), as amended by the Finance Act 2015, provides that a chartered accountant is eligible to be an “authorized representative” subject to many terms and conditions. No opportunity is being lost by the legislation to cover the profession of Chartered Accountancy.
Auditors Independence is the talk of the town. More and more statements, quotes, books, guidelines shall thrust upon the definition of the independent auditor. Every stakeholder knows that selecting an independent auditor that meets a company’s expectations and needs are paramount to effective corporate governance, effective Tax management and effective political governance. Many talk about the independent auditor and look towards independent auditor with a great hope that such auditors would act with due diligence and care without compromising independence. The latest amendments clearly show a way to the profession that an auditor who is not independent cannot meaningfully discharge his functions of protecting the interest of revenue by remaining fair. There is no problem of concept of Independent auditor with the auditor fraternity. They are very much ready to deliver and fulfill the expectations of the stakeholders.
Is it justified that new 51 a rule states that if an auditor has contributed more than Rs 50000/- to a charitable institution, he can’t represent the charitable institution before the Income Tax Authorities. Now in the eyes of law, he shall lose his independence as he is a substantial contributor to that charitable institution. Though the reality is just an opposite of it, If a Chartered accountant gives a donation of Rs. 50000/- and thereafter if he represents the case, HE will be more vigilant and will see towards the accounts, taxation, the conduct of the institution with more open eyes. One more coincidence which may take place is that that if an auditor cum tax consultant find the working of any charitable institution impressive but he can’t be a contributor of Rs. 50000/- towards the charity because it will lose his tax consultancy.
Now it has been taken as granted that if the auditor is a related person, the independence, authenticity and bona fide of such Audit Report shall be compromised. An auditor is expected to discharge his duties with full independence and without compromising the interest of revenue. In the absence of reliability of an audit report signed by interested /related person, not only the reliability of the report suffers but may also aid in tax evasion.
All the Chartered Accountants, if true to their calling, have the independent outlook and the high standards of performance attributed to them as professionals. Many courts have given due respect to the audit report and have held that without having any positive material on record, audit report submitted by the Accountant cannot be disregarded. The authenticity of books of accounts is accepted on the basis of audit reports. Reference may be made to the decisions in CIT v. Regional Kisan Gramin Bank (2014) 42 taxmann.com 578 (Allahabad); CIT v. U.P. State Food & Essential Commodities (2013) 39 taxmann.com 106 (Allahabad); Madanani Construction Corporation Pvt. Ltd. v. CIT (2008) 296 ITR 45 (Gau).
Are Chartered Accountants really independent? All stakeholders recognize chartered accountants as independent who are not in fact independent. Our profession is under intense congressional scrutiny by the latest amendments. The amendments in Company law 2013 and Finance Act 2015 are heading towards a single object to achieve independence and integrity of the auditor. The process of appointing, assessing, and compensating the independent auditor is an important activity. It is the independent auditor’s responsibility to perform a high-quality audit.
But the foremost point is the appointing procedure. No one talks about this. No literature is available where the appointment procedure has been considered as a vital element to achieve auditors independent. In present circumstances there is 100% failure in the appointing procedure of the professional opportunities. The profession is directly in line of fire because the appointing procedure of the auditor is not leading the profession into right direction nor the profession will ever achieve the independent auditor.
The appointment procedure is the mother of the independent auditor. How can an independent auditor be born without a mother? It’s not possible so when we shout about achieving Auditors Independence, are we making fools of everyone? Yes, as long as we shall not deal with the appointing mechanism in all kinds of auditors, it’s wrong to admit being complied with auditor independence.
Independence refers to the mental attitude of a Chartered Accountant in approaching a task. It deals with the actual and the perceived ability to act with integrity and objectivity. The appearance of an independent mental attitude is as important to an auditor as the attitude itself. To us, mental attitude is primary and our appearance secondary. So a mental attitude constitutes the whole of independence. An auditor which is being appointed to the task is by a feeding hand and if he decides to bite a feeding hand, then only he is honest, objective and of independent behavior. Everyone thinks the concept of independent is vital to successful audit practice, then why the allotment or appointment procedures are being taken up in a casual approach.
There are approx 50000 Chartered Accountant firms out of which 40000 are in real time practice. Is it difficult to regulate the 40000 firms with the centralized allotment procedure? In a country , where we are heading towards 1.25 billion aadhar cards digitally attached to their banking accounts and operating it to reimburse the few hundred rupees of subsidy in their account by auto route. Can’t this country regulate and allot the audits to these 40000 firms through a transparent way. Each and every audit allotment is defective and unfair.
The attacks are many. The government is ready with the weapons of mass destruction. Here mass destruction is for the poor accounting professionals. They are ready to hit the auditors. The protection, management which is in the hands of our regulator ICAI has totally failed to raise its voice against the deliberate attempts on the Chartered accountants. Likewise, our government is fully ready to take on its enemy with the strength of their weapons; we see the following threats to our professional practice.
APPOINTMENT OF AUDITOR THROUGH TENDERING.
1. SURYA is Intercontinental-range Multiple independently targetable reentry vehicle (MIRV) with a range of 8000-12000 KM is under development stage. In our profession, we have a tendering process to kill our independence. The tenders are being floated with their own wish list of terms and conditions. The accounting professionals are not able to cope with the tender invitation and are seeking it as low as Re 1 per audit. This tendering process shall have the same effect as Surya shall have in the enemy camp.
APPOINTMENT OF STATUTORY CENTRAL AUDITOR BY CHOICE.
2. AGNI- VI is a Submarine-launched with an intercontinental – range (probable MIRV) having a range of 6000 to 8000 KM is under development stage. In our profession, now we are having a system of autonomy for Central auditor’s appointment in the case of PSU banks. The chairman/ Boards/ Audit Committee is free to choose any of the eligible audit firms as Central auditors of the bank, It’s in the hands of those you are at the helm of affairs that they can choose anyone of their choice. This procedure shall have the same deadly effect on the enemy as of Agni VI.
APPOINTMENT OF CORPORATE AUDITOR BY CHOICE
3. AGNI-V, Intermediate to Intercontinental-range Tested successfully for 5000 to 8000 KM.In our profession, the corporate auditors are being appointed by the shareholders of the company. Technically, this is the big lie. The management decides the auditor take its auditor’s eligibility letter to act as an auditor and then take the name to the meeting of the shareholders and get them approved. This appointment is also an accommodating appointment because there is nothing which suggests that the appointment is an independent one. It’s in the hands of those you are at the helm of affairs in the capacity of the board of Directors as they can choose anyone of their choice. This procedure shall have the same deadly effect on the enemy as of Agni V.
APPOINTMENT OF STATUTORY BRANCH AUDITOR BY BANK STAFF.
4. AGNI-IV, Intermediate-range Tested successfully for 4000 KM. In our profession, the branch auditors are being appointed by the staff of the concerned bank. The staff gets a voluminous list of auditors from RBI and selects the auditor at their choice. Members at large approach them to get the allotment of audits. This appointment is also an accommodating appointment as being begged by auditors and there is nothing which suggests that the appointment is an independent one. It’s in the hands of those you are at the helm of affairs at the lower capacity as they can choose anyone of their choice. This procedure shall have the same deadly effect on the enemy as of Agni IV.
APPOINTMENT OF CONCURRENT AUDITOR BY BANK STAFF.
5. AGNI –III Intermediate range 3500 to 5000 KM deployed to safeguard the territories of the country. In our profession, the concurrent auditors are being appointed by the staff of the concerned bank for favour, for money and for other interests. This is going on uninterrupted for the last 60 years. No challenge from the regulator which is a mute spectator to this on going wrong practice. This appointment is also an accommodating appointment as being unethically obtained by auditors and there is nothing which suggests that the appointment is an independent one. It’s in the hands of those you are at the helm of affairs at the lower capacity as they can choose anyone at their sweet will. This procedure shall have the same deadly effect on the enemy as of Agni III.
APPOINTMENT OF AUDITOR BY RRB.
6. AGNI –II, Medium Range 2000 to 3000 KM, deployed. In our profession, the concurrent auditors are being appointed by the management of the concerned bank. They allot the 15 branches to one auditor from a list received from NABARD. They give the ¾ days to complete the assignment. If anyone raises some reservation of questioned the procedure they qualify them for termination. They appoint the new one and get it signed at a prescribed time by hook or crook. This appointment is also an accommodating appointment as being unethically obtained by auditors and there is nothing which suggests that the appointment is an independent one. It’s in the hands of those you are at the helm of affairs at the lower capacity as they can choose anyone at their sweet will. This procedure shall have the same deadly effect on the enemy as of Agni II.
APPOINTMENT OF AUDITORS BY A PARTNERSHIP OR SOLE PROPRIETOR FIRM.
7. Agni –I short to medium range 700-1250 KM, deployed and ever ready to protect the country. In our profession, the auditor is having formal and informal contacts which give the referrals, he is associated with the various social networks, the old clients introduce there known people to the auditors and above all the relative place an important role in establishing a practice and appointments to the small enterprises. This appointment is also an accommodating appointment as being appointed by referrals and there is nothing which suggests that the appointment is an independent one. This procedure shall have the same deadly effect on the enemy as of Agni I.
APPOINTMENT OF AUDIORS BY C & AG.
8. This is the only audit, which gives independence to auditors. The appointment comes through auto route based on the well established open calculation of weight age of seniority, the term of term establishment, association with the firm, the test of genuinely with the compensatory figures from the firm and were appointed by an independent authority i.e C&AG. Yes, here the auditor appointment is an independent one.
It is not uncommon these days to hear expressions of grave concern within our profession about loosing its shine, compromises with unethical acts and a general decline in intra profession courtesy. At the same time, We Chartered accountants are being surfaced in every stringent amendment. We are being addressed as irresponsible in dealing with the economic affairs of the country. These concerns have led some to worry that our professionalism is either dead or teetering on the brink of extinction. At least this phenomenon is true for the sole proprietors or small firms operating across the country because of being shunted out from the professional opportunities. Weapon details @ Wikipedia.