CA Sandeep Kanoi
ICAI has in its Pre-Budget Memorandum Presented to Ministry of Finance suggested that porposed changes in Definition of the term “accountant” in the Direct Taxes Code, 2013 are not required and claimed that ICAI is a premier body formed by MCA only to train chartered accountants to gain expertise in accounting and auditing ICAI. There is much more which can be elaborated like difference in the focus of the syllabi on the basis of which expertise is tested, effective steps taken by ICAI to ensure the quality of audit, guidance provided by ICAI in the field of auditing and accounting and the like. However, it is felt that the very fact that the mother Act itself does not allow the Cost Accountants and Company Secretary to conduct audit is good enough ground to convince one that the definition of “Accountant” does not require any change.
Please find below the Justification and suggestion submitted by ICAI to Government of India against the porpsed change in Definition of the term “accountant” in the Direct Taxes Code, 2013 :-
ICAI Suggestion on Proposed Definition of ‘Accountant’ in Direct Taxes Code, 2013 in Pre-Budget Memorandum 2014
|Definition of the term “accountant” in the Direct Taxes Code, 2013||
The Institute of Chartered Accountants of India (ICAI) is a statutory body established by the Chartered Accountants Act, 1949 for the regulation of the profession of Chartered Accountants in India exclusively form to regulate in the matter of accounts on audit and its professionals. The ICAI has achieved recognition as the premier accounting body in India and today it is the second largest accounting body in the world.
However, the proposed definition of “Accountant” under clause 320(2) of the Direct Taxes Code, 2013 which includes the “Cost Accountants” and “Company Secretaries” has been a cause of major concern to the entire profession. Before the Code enacts into a Bill and then law of the land, we would like to place on record our anguish and concern not only for the profession but for the country as a whole since issuance of audit certificates by persons who have not authorized to do so by the Acts of Parliament.
With regard to the definition of the term “Accountant” in the Direct Taxes Code Bill, 2010, the Standing Committee had made the following observations and had suggested widening of the definition of the term “Accountant” on the request made by ICSI and ICWAI:
“17.9 The Committee observed that the Ministry’s reasoning for non-inclusion of related professionals in the definition of accountant is a very strict construction of the term. In the view of the Committee, the suggested amendment may provide the Small and Medium Enterprises (SMEs) a wider and cost effective scope for selection of professionals and will be an important initiative towards simplified tax compliance regime. The Ministry may therefore re-consider the suggestion to widen the scope of the definition of “accountant”.
Observations of the Ministry of Finance
Although, the Institute of Cost Accountants and Institute of Company Secretaries have suggested inclusion of terms “Cost Accountant” and “Company Secretary” in the definition of “accountant”, the Ministry of Finance had not accepted their suggestion on the ground that “an accountant for the purposes of tax matters is required to deal with all financial matters and audit all financial ledgers, books, records and statements of a company or firm etc whereas a cost accountant deals primarily with estimates of cost for projects and monitoring the project to ensure that these are within the budget. Therefore, a cost accountant may not have the expertise to deal with all the financial statements and matters.
Further, the question here is not of giving privilege to any particular The Institute of Chartered Accountants of India profession rather the most suited profession for dealing with the matters relating to direct taxes has to be assigned the work. Accordingly, the suggestion is not acceptable.
Under clause 304(3) (F) of the DTC, the Board may prescribe any person with specified educational qualification to act as an authorized representative. The same procedure is followed under the current Act. Accordingly, this will be considered at the time of framing of subordinate legislation.”
As per the Report of the Standing Committee on Finance on Direct Taxes Code Bill, 2010 the Ministry of Finance had protested this change. We, by way of our letter dated 16-05-2012 had appreciated the stand taken by the Ministry of Finance in this regard. A copy of the same is enclosed for your reference. Since the provisions of the proposed Direct Taxes Code are not in alignment with the view of the Ministry of Finance, it is difficult to understand the reason of change of opinion of the Ministry of Finance.
Recognization of all three professionals by the Companies Act, 2013
Audit of Financial Accounts is the exclusive domain of chartered accountants is a well known fact and is even recognized by the Companies Act, 2013(as also the erstwhile Act of 1956). Section 141(1) clearly provides that a person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant. While considering the domains of other two professionals, section 143(14) of the said Act also provides that the provisions of section 143 shall mutatis mutandis apply to:
(a) the cost accountant in practice conducting cost audit under section 148; or
(b) the company secretary in practice conducting secretarial audit under section 204.
It may be noted that the Ministry of Corporate affairs is very clear about the domains of all the three professionals and has, thus, assigned the right task to the right professional who are suppose to carry out the assigned task in a professional manner.
Implications of Conduct of audit by non-chartered accountants
Conducting of tax audit by non-chartered accountants having limited knowledge of the principles of accounting, auditing and tax procedures thereof would result into complexities not only for the assessees as also for the Government including but not limited to inaccurate computation of income, leading to leakage of revenue. While processing the data provided by the Income-tax Department in respect of tax audits conducted by chartered accountants, it was observed that a number of tax audit reports were filed by the assessees by quoting wrong membership details of the Chartered Accountants. The fact of alleged misuse of membership details of chartered accountants was also reported to CBDT vide letter no. DTC/2011-12/Rep-07, dated 16th December, 2011 and subsequently vide Letter no. DTC/2012-13/Rep-09, dated 15th June, 2012. As per our knowledge, action has been taken against those assesses who avoided getting their accounts audited and tried escape tax. The Ministry may be very well aware of the tentative figure of the involved revenue leakage. Such cases are a LIVE examples of the implications of getting the tax audit done by “Cost Accountants” and “Company Secretaries” who do not have expertise to do the same and are thus as good as fake audits.
Difference in scope of service of CA, CS and CWA
a) Section 2(2) of the Chartered Accountants Act, 1949 permits a chartered Accountant to conduct a financial audit or issue certificates based on financials of an assessee.
b) Section 2(2) of the Cost and Works Accountant Act,1959 restricts the domain of services of cost accountant to services relating to costing or auditing of cost accounting and related statements only. A Cost Accountant is in no case eligible to conduct a financial audit. The argument that such activities can be included in the residuary clause also will not hold good since residuary clause cannot go beyond the main function like a doctor cannot be called to do the job of an advocate.
c) The Company Secretaries Act, 1980 restricts the domain of services of Company Secretary to secretarial services relating to Companies only. A Company Secretary is in no case eligible to conduct a financial audit or issue certificates based on accounts of a company or any other assessee. In fact the Income tax Act covers a wide range of assessees other than companies also like individuals, HUF, firms, Co-operative societies and so on.
There is no doubt that ICAI is a premier body formed by MCA only to train chartered accountants to gain expertise in accounting and auditing ICAI. There is much more which can be elaborated like difference in the focus of the syllabi on the basis of which expertise is tested, effective steps taken by ICAI to ensure the quality of audit, guidance provided by ICAI in the field of auditing and accounting and the like. However, it is felt that the very fact that the mother Act itself does not allow the Cost Accountants and Company Secretary to conduct audit is good enough ground to convince one that the definition of “Accountant” does not require any change.