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It clearly seems that the Central Government is paying no heed to the Council of the Institute Of Chartered Accountants of India.  Being an autonomous body, ICAI denotes a self-governing body, independent, or subject to its own laws. It was created by the same constituent assembly of the Country which was entrusted with a job to write a constitution of the country. For years, ICAI enjoyed the autonomy but with the period of time, this autonomy has reached the lowest level. ICAI is to be governed by its 32 elected members and eight nominated members by the Government. One of a hallmark of a profession is the grant of the certificate of practice by ICAI. The same is granted to a member willing to go for a practice; this right of practice assures that the member concern has met some certain standards of passing an examination and awarding a membership of the ICAI.

The Discipline of the Profession

Though, the ICAI was going with a definite route to cover the disciplinary mechanism since 1949. However, a notion always prevailed in the society and with the Government that there should be an effective system for the on-going CA regulation.  This disciplining of the profession has now upgraded with monopolist effect in the name of NFRA under the Companies Act 2013 law. It is rooted in the belief that initial qualification requirements and disciplinary mechanism under the council are not sufficient to protect the public interests. Some years back, the Government has appointed the nominee members to the disciplinary board and committees but still, the purpose of Government interference didn’t yield the desired results.

The Union Cabinet on 1st March 2018 approved the establishment of much awaited National Financial Reporting Authority. This created one post of Chairperson and three posts of Full-Time Members against a provision of fifteen members in law and one Secretary for NFRA.  The establishment of NFRA was announced and notified as per section 132 of the Companies Act 2013 which carries a provision to create a National Financial Regulatory Authority termed as an audit super-regulator. The Central Government has notified The National Financial Reporting Authority (Manner of Appointment and other Terms and Conditions of Service of Chairperson and Members) Rules, 2018” (NFRA), in the Gazette of India on 21st March 2018. Sensing its significance and with  expectation of its role in to it, The ICAI council at its 374th meeting held on 21st – 24th March 2018 took note of the same and decided to constitute a Group to interact with the Government on day to day basis in connection with the formation of Rules of the National Financial Reporting Authority. However, the process resulted in the disappointment of the council and the latest letter of displeasure to the Ministry of Corporate Affairs suggests that the Government has paid no heed to ICAI.

ICAI – Expresses Disappointment over Dismissive Stance on NFRA

ICAI has sent a letter to the Government expressing displeasure for not including it in discussions to frame rules for the NFRA  a competitor body set up for regulating auditors. From day one, The ICAI was representing the Government to be on the board for finalising the rules of the NFRA. It was assured by the Government that ICAI shall have a role into it as the new regulatory body is in direct line of confrontation with the regulatory powers of the ICAI. It is likely that NFRA will take over from the ICAI powers to investigate auditing and accounting professionals of listed companies. While NFRA will look into cases of listed companies, the ICAI’s role will be confined to private limited or unlisted public companies below a threshold, which is yet to be decided.

NFRA- The Chairman is in Office Now

Recently, a former bureaucrat Rangachari Sridharan was appointed NFRA chairman. The appointment was made after a screening committee rejected hundreds of candidates who were in the fray. Showing displeasure over such appointment, ICAI in a letter to the Ministry of Corporate Affairs had mentioned that even the appointment of the chairman of the NFRA came to its knowledge from media reports.  Earlier, the Government has rejected the long demand of ICAI to strengthen the Disciplinary mechanism of ICAI rather than to create another body without any saying of the ICAI. It seems, the ICAI will be confined only to give away certificates to auditing professionals and will continue to play an advisory role with respect to accounting and auditing standards as well as policies, by making its recommendations to NFRA.

NFRA with Sweeping Powers Is a Result of Failed ICAI

The disciplinary regime of the ICAI was weak and failed to deliver the desired results. The earlier disciplinary mechanism was not even having any powers to investigate the firms of auditors. Only Chartered accountants in their individual capacity were subject to the disciplinary mechanism of the ICAI. Naturally, the spice of the disciplinary powers was missing. The Trust Bank, Satyam etc. are many known cases where the mechanism was hijacked by the mighty big 4 in their own tune and gave a tough route to ICAI to punish its members, in which one of them was a council member.

However,   NFRA can recommend penal action against auditors if they are found non-compliant or there are lapses in their duties. If the authority finds or has reason to believe that any law or accounting standards have been violated by an auditor, it may decide on the further course of an investigation or enforcement action. Further, as per the proposed rules, the new watchdog will require auditors to register with it before taking up auditing work. Further NFRA may prescribe a new set of code of conduct and governing principles for auditors and will have powers to cancel the registration of the auditor in case of a violation. Chartered Accountants in Industry, Auditors of listed companies, Statutory Auditors of public sector banks, C & AG appointed Statutory auditors of government entities will also come under the NFRA. Further, the conditions to registration with NFRA shall also be regulated.

Such sweeping powers in the hands of those which are not from the accounting and auditing background give a sense of fear to the members and will render ICAI toothless. The complaints under the NFRA regime are to be decided by the full-time chairman and members with no role for the ICAI. Further, the recommendation of accounting and auditing standards will also be taken over by NFRA which is presently dealt with by the ICAI.  If implemented in the present form, ICAI will be required to submit recommendations on the “new” accounting standards or for amending the existing standards. NFRA will consider those before presenting them to the corporate affairs ministry for implementation.

NFRA First Job – The Infrastructure Leasing & Financial Services (IL&FS)

As the government sets up the NFRA, the Infrastructure Leasing & Financial Services (IL&FS) is the first case to be investigated by the authority. The ICAI is also looking into the IL&FS crisis and formed High Power Group on Infrastructure Leasing & Financial Services Limited (IL&FS) matter. Terms of Reference of the High-Power Group would be to study the systemic issues in the IL&FS matter and suggest remedial measures and improvement in the system and any other matter incidental thereto. The ICAI cannot take a cognizance over the disciplinary of the auditors as now the same has been placed to NFRA & now no one has any saying into it.

Auditors Are Under Over Regulation Now

The ICAI regulate the disciplinary mechanism with a maximum threat of removing members name from the Register of Members permanently. The NFRA shall regulate the enforcement of the profession. The company law allows the class suits. There is always a threat of civil damages and criminal penalties. RBI came up with the enforcement provisions for the limited purpose of bank audits. One might wonder why an organised profession either desires or is expected to impose on itself additional forms of discipline or sanctions. One answer might be that profession be designed to enhance both the quality of practice of its members and the stature of the profession in the eyes of the public. Another answer might be that a profession should keep the Government intervention in its affairs at a minimum. An effective system of self-regulation is believed to be the best way to achieve this objective although it is by no means a guarantee that a profession will be thoroughly regulated. Even the threat of punishment has been of questionable effectiveness in curbing the misdeeds of individuals who lack respect for authority and the law.  The essence of the whole issue is that the rigorous disciplinary action of ICAI also seems to be ineffective to some extent in deterring some of the Chartered Accountants from resorting to undesirable practices. The reason for this seems to be that many a time undesirable practices are not caught and only sparingly CA(s) get punished for their intentional misdeeds; which again are a time taking process.

(About the Author– Author was Member of ICAI- Capacity Building Committee 2010-11 and ICAI- Committee For Direct Taxes 2011-12 and can be reached at email amresh_vashisht@yahoo.com or on phone Phone: 0121-2661946. Cell: 9837515432 having office at 115, Chappel Street, Meerut Cantt, UP, INDIA)

Author Bio

Author was Member of ICAI- Capacity Building Committee 2010-11 and ICAI- Committee for Direct Taxes 2011-12 and can be reached at email amresh_vashisht@yahoo.com or on phone Phone: 0 1 2 1-2 6 6 1 9 4 6. Cell: 9 8 3 7 5 1 5 4 3 2 having office at 1 1 5, Chappel Street, Meerut Cantt, UP, INDIA) View Full Profile

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7 Comments

  1. N. Krishnaswamy says:

    In the Satyam case,SEC took only 10 months to make the enquiry and punish PWC India whatever may be their branches with a finne of US$1,000,000 and prohibiting them from signing USGAAP accounts for two years
    But ICAI took more than 5 years to complete the enquiry to only disqualify some partners but did not look into the losses caused to the large set of investors in the company. ICAI even did not know which firm is auditing the SATYAM accounts and ISSUED NOTICE TO PWC delhi who denied their involvement in the audit. BUT SEC punished all the firms involved with PWC name.

    My own personal experience is that they do not give much importance to audit.

  2. BSK RAO says:

    I SUGGEST ICAI PUT AN END TO MONOPOLY AND ACEPT COMPITATION WITH RELATED PROFESSIONALS – THIS IS MY SINGLE LINE ADVISE TO ICAI FINANCIALS

  3. R NAGARAJAN says:

    Chartered Accountants are responsible for tax evasions that are happening in the country. They take interest only to their clients and these CAs refuse to look into country’s interest.

    This new regulatory is the need of the hour.

  4. Joshi Dinkarray. says:

    Government is putting tremendous pressure on us by increasing so many reporting requirements in tax audit repertoire and Get report.Why our Institute should bend so much to this government pressure ?Why can’t we tell the department we can go only this far and no more?Why can’t we give them dates for compliance?Time has come to tell government in plain words that we cannot be pushed to corner all the time.

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