CA Amresh Vashisht
It is a bare truth that chartered Accountant profession needs progressive dimension of running a successful Audit firm. Another truth is that in today’s national scene It is time that with the visualization & aspiration, every individual or sole proprietor should create new avenues and be ready to successfully administer his or her practice. My vision is not an extravagance, but an essential role in shaping the sole proprietor firms.
The frustration felt by sole proprietors practitioners are real and they are exacerbated by the tremendous charges that are surging through the profession. The leaders stressed the need to increase the size of the firm and try to connivance the members that increasing the size of the firm lead to signal of success.
A submission here is not merely another statement. It is a reflection of today’s reality and is a declaration of the desirable future conditions. There are growing pains of Small CA firms so here are the available Remedies. Only regulators timely intervention shall be a real help to 70% of the total members engage as individual / sole proprietors. Our regulator should support all the measures to overcome from the challenges being faced by such practitioners. Point of consideration is that such firms represent 70 % of the total firms and all below mention policies are having a positive nod of the regulator. In a nutshell the growing pain of sole proprietor on the below mention opportunities are as follows.
i). Almost NIL opportunity where work is allotted through tenders.
ii). No statutory Bank Audit for the first three years of the practice.
iii). Earlier condition of at least allotment of 40% work of statutory Bank Audit in the case of sole proprietors dispensed with.
iv). No PSU minor audits for the first five years of the practice. Thereafter the net profit of specified sum be maintained otherwise ineligible.
v) No concurrent audit to sole proprietors. Only Partnership firms are allowed that too 4 concurrent per partner per year.
vi) Sole Proprietors firms are not considered for statutory audit of RRBs
vii) Sole Proprietors firms may not consider for statutory audit of the cooperative banks.
viii) CA firms or own staff left to the individual banks for concurrent audit of the cooperative banks.
CORRECTIVE MEASURES REQUIRE TO STRENGTHEN SMALL CA FIRMS
ICAI maintains a committee for capacity building of small and medium firms. I have also served the committee way back in 2010 and can say with confidence that non standing old committee has failed to give a single measure for capacity building of small and medium firms. The following issues are of paramount importance to the existence of the smaller firms and requires immediate redressed. Such matters are being dealt under professional development committee and such vital issues have never surfaced at the capacity building of small and medium firms.
TENDERING OF CA SERVICES
Tendering abuse shall be dealt strongly. In case of tender acceptance by any authority, a cost sheet by a CA be approved by ICAI before taking up the audits. If ICAI rejects the cost sheet, the members shall not be eligible for initiating any work awarded through such tender. ICAI approval over cost sheet shall be dealt with the same spirit as Communication with previous auditor. Tendering offers must be free from emphasis to the size or the turnover or net-worth of the Chartered Accountant Firms and no such minimum criteria need to be specified in their minimum eligibility requirements to serve them. Regulator should formulate the guidelines to regulate the tendering process under Clause (6) of Part I of first schedule.
STATUTORY BANK BRANCH AUDITS
A Statutory bank branch audit should be made compulsory for all bank branches, irrespective of the amount of advances and/or deposits of the branch. The policy of cut-off limit of advances of Rs.20 crores should be taken back being detrimental in every respect and to every stake holder. The first three year eligibility criteria should be dispensed. Equal playing field shall be provided to all the eligible with the weight age system of year of experience. The individual and sole proprietors should have at least 70 % of the total statutory bank audits. The categorization system being illogical be scrapped.
In case the Govt. decides to retain a cut-off limit of advances of Rs.20 crores, the branches falling below this limit should be audited once in 3 years instead of the present system of 5 years, which is an extra long period and gives impetus to wrong doings at such branches.The basic structure for allotment of bank branch statutory audit should be revised & should be based on the advance plus deposits exposure of branch instead of advances only. The auditors are responsible for the authenticity of deposits also.
STATUTORY PSU AUDITS
Sole Proprietors Chartered Accountant firms in India with at least one full time FCA can apply for empanelment with this office for allotment of audit of Public Sector Undertakings. This criteria for empanelment and selection of statutory auditors have been arrived at after due consultation with the Institute of Chartered Accountants of India. For the first five years sole proprietors are not eligible for such audit. The selection of CA firms for appointment as statutory auditors of PSUs whose audit fees are up to Rs 1.50 lakh is made by correlating the point score earned by each firm of Chartered Accountants towards empanelment with the size of the audit fee. The point score is based upon the experience of the firm, the number of partners and their association with the firm, number of Chartered Accountant employees. So even after five years there is very remote possibility to get any audit from C& AG.
Sole Proprietors are also subject to achieve a designated profit from their proprietary firm. Even after achieving 5 years , he is not getting the net profit of Rs. 3,60,000/- in metro and Rs. 1,80,000/- for non metro. He or she shall not be eligible for the C& AG audit. This is in addition to weight age granted for every partner so in no circumstances, a sole proprietor can’t beat a smallest partnership firm. What a mockery? Above all, it is quite disgusting that the same is having an approval of the regulator.
This 5 year blocked don’t have any merit to stand. It’s a hindrance to the growth of a sole proprietor firm. There should be an independent scale of measurement of sole proprietor’s weight age as logically sole proprietor firm cannot beat a partnership firm.
In 2009, RBI revisited the concurrent audit portfolio and issued the guidelines. The guidelines were having a start note that the policy is approved and consented by the regulator. The Guiding Principles on Concurrent Audit issued by the RBI in September 2012 clearly defined that Chartered Accountant Firms should be appointed from the RBI panel as per the gradation based on the size of the Branch. Here too sole proprietors have been kept out of reach for such audits. Few banks are still carrying the sole proprietors, but it seems now it’s a matter of a few days.
The regulator must have been in support of sole proprietors as they need a helping hand from the proprietor. This limit should be scrapped and branches with some specified advance/ deposit limit be reserved 100% for the sole proprietors. The RBI dictated a partnership firm for concurrent audit and the regulator has nailed the last nail in coffin by passing $ concurrent Audits per partner in one year. It was a clear accommodation to a few of the firms of the super powers of the institute.
The 2009 requirement that Sole proprietorship firms to be considered as SBA, to the extent of 20% of the total requirement has been dispensed off in 2012. Now For Standalone RRBs Statutory Auditors may be drawn from Category II & III and In the case of non availability of Category I, II & III , auditors may be drafted from Category IV and Sole Proprietors firms may not be considered for statutory audit of RRBs. These conditions were placed after an approval of the Finance Minister of India.
It is totally surprising that the vital changes were made against the sole proprietor firms which are all most 70 % of the total firms and regulator consented and stood with the unjustified standing as mute spectator. The size of the RRB and the remuneration of the RRB are totally fit to reserve this audit opportunity in favour of sole proprietors or upper most mid size firms. Category-IV auditors and Sole Proprietorship Firms even with the experience of more than 20-25 years are not considered for the appointment as branch auditors of small branches of the RRBs. What a mockery?
COOPERATIVE STATUTORY & CONCURRENT AUDITS
For a Statutory audit of the cooperative banks, a new audit procedure is about to implement as agreed between the state Governments, NABARD & RBI. But the real tragedy is that Sole proprietor firms are out of eligibility norms and as per agreed policy having a nod of the Finance Minister of Government of India. This policy embarks that as far as possible CA firms falling in Category I & II are to be chosen .However, firms of III category with good experience may also be chosen.
Since the Concurrent audit of the cooperative Banks, the option to consider whether the concurrent audit should be done by the external auditors (professionally qualified Chartered Accountants) or its own staff may be left to the individual banks.
The present limit of the Tax Audit u/s 44AB is 60 per partner. This limit is prescribed by the regulator. This tax audit limit does not cover the tax Audits u/s 44AD. This omitting of limit u/s 44AD is again in favour of partnership firms. The limit criteria are based on four fundamental wrongs, but being dragged by the regulator since long. The first wrong is not recognizing the audits u/s 44AD though the audit report is same, working is same, and the risk of an accountant is also same then why there is a difference between 44 AB & 44AD. The second wrong is the limit of 60 audits a year. The limit should have both the audits and be increased to make it growth oriented for the sole proprietors. The third wrong is illogical authorization to signatory on behalf of firm. TAX Audit has to be signed by an accountant as defined in section 288 of the income tax act. Section 288 does not recognize the existence of firms, but the regulator has allowed the signing of Tax Audit reports beyond prescribed limits to be signed for and on behalf of the partners of the firm.
TRUST / SOCIETY AUDIT U/S 10 BB
Presently Tax Audit are not applicable to Cooperative societies, Trust/societies (Non Business entities), the same be put to some limit based on their revenue receipts. This will be a new professional opportunity and work shall increase manifold without much effort. The reports should also be limited and regulated through the maximum number of audits on the line of Tax Audit.
STATE GOVERNMENT AUDITS
One central body should appoint auditors for the state government department and local bodies and for many governments run organizations, which are kept beyond the reach of CAs or where CAs are appointed without any publicity. MEF should get a statutory recognition for allotment of various Government audits.
CORRECTIVE MEASURES REQUIRE TO STRENGTHEN MID SIZE CA FIRMS
The sufferings for MID sized firms i.e Up to 5 partners are also on the same line of sole proprietors. These mid sized firms are the most suffers for Tendering abuse, which require be dealt strongly without any failure. Sole proprietors are not eligible for tendering in most of the cases, but the work designated in this section of midsized firm is being swallowed by a few firms. As suggested earlier, In case of tender acceptance by any authority, a cost sheet by a CA be approved by ICAI before taking up the audits. If ICAI rejects the cost sheet, the members shall not be eligible for initiating any work awarded through such tender.
The government, authorities and other stakeholders are required to be effectively communicated that they need not give over emphasis on the size of the turnover or net-worth of the Chartered Accountant Firms, and no such minimum criteria need to be specified in their minimum eligibility requirements to serve them. The Government, RBI and other regulators may issue guidelines on regulators persuasion that Midsized CA Firms are only considered for Government sponsored jobs and assignments for any organization receiving Government Grant.
Conclusively, In a very dignified manner, a dirtiest game has been played by those who are at the helm of affairs. The mapping of the timing of the wrongful decisions taken against the sole proprietors and their firms is a part of the conspiracy being hatched by the so called leaders. Down the line 5/7 years, these sole proprietors were blue eye guys which have now been sidelined. It’s quite surprising that the regulator have never protested for the unjust being awarded to sole proprietors rather the regulator has given its consent to go ahead without assessing the damage to the majority. There is a need to increase the scope of work for practicing chartered accountants, especially the new entrants to the profession to get the minimum assignment as a motivation to continue the practice.