The Institute of Chartered Accountants of India or ICAI, which is our mother body as well as the governing body which play an important role in overseeing the profession of chartered accountancy in India, This body recently made headlines with its disciplinary actions against the three affiliate entities of EY India.
The order, dated April 25, brought to light the professional misconduct of these entities and one of their members, CA Raj Kumar Agrawal.
Let’s discuss the intricacies as well as implications of this case
The entities in question, formerly known as S. R. Batliboi & Associates, LLP; S.R.B.C & Co., LLP; and S. R. Batliboi & Co., LLP, were reprimanded by the ICAI for breaches of the Chartered Accountants Act, at the end of article will give you quick summary. The core issue which was revolved was these firms focussed around their dealings with global firms under the EY network that operated outside the regulatory purview of India.
What is a network?
According to the Chartered Accountants Act, a network is a combination of two or more firms registered with the Institute of Chartered Accountants of India that work together to improve the professional functioning of the member firms. CA Act also states that these networks shall be subject to the ICAI’s Code of Ethics and they must be registered with the ICAI so that they could be recognized officially
Coming back to topic, CA Raj Kumar Agrawal, identified as ‘member answerable’ by the respondents, was found guilty of professional misconduct by the ICAI. The disciplinary committee, constituted under Section 21B of the Chartered Accountants Act, meticulously examined the evidence and representations before arriving at its verdict.
Section 21B deals with Disciplinary Committee, here is the bare act
(1) The Council shall constitute a Disciplinary Committee consisting of the President or the Vice-President of the Council as the Presiding Officer and two members to be elected from amongst the members of the Council and two members to be nominated by the Central Government from amongst the persons of eminence having experience in the field of law, economics, business, finance or accountancy: Provided that the Council may constitute more Disciplinary Committees as and when it considers necessary.
(2) The Disciplinary Committee, while considering the cases placed before it shall follow such procedure as may be specified.
(3) Where the Disciplinary Committee is of the opinion that a member is guilty of a professional or other misconduct mentioned in the Second Schedule or both the First Schedule and the Second Schedule, it shall afford to the member an opportunity of being heard before making any order against him and may thereafter take any one or more of the following actions, namely: – (a) reprimand the member; (b) remove the name of the member from the Register permanently or for such period, as it thinks fit; (c ) impose such fine as it may think fit, which may extend to rupees five lakhs.
(4) The allowances payable to the members nominated by the Central Government shall be such as may be specified.
The committee’s order, as per the findings, directed the removal of Agrawal’s name from the Register of Members for a period of three years, concurrently in all cases.
Additionally, in each case separately, a fine of Rs 5,00,000/- was imposed on him by ICAI, with a condition to pay it within the period of 90 days. Failure to comply this direction and payment of fine would result in an extension of the removal period by one year.
Furthermore, the panel of ICAI also instructed him as well as the respondent firms to cease their existing arrangements with multinational entities, citing circumvention of the provisions of the Chartered Accountants Act 1949.
This action taken by the ICAI by reinforcing a reference to the judgment by the Hon’ble Supreme Court of India in the case of S. Sukumar vs The Secretary, ICAI, which underscored attempts to bypass relevant sections of the Act.
The order required the respondents to send a report within 90 days, showing that they followed the rules set by the ICAI. This shows how seriously the regulatory body i.e. ICAI takes the issue and its dedication to maintaining high standards in the accounting field.
This case affects more than just the people and companies directly involved. It brings up bigger issues about how accounting is regulated in India and the difficulties posed by global networks that work in different places.
One of the key issues highlighted by this case is the need for greater clarity and enforcement mechanisms regarding the engagement of Indian accounting firms with global entities. The temptation to circumvent regulatory requirements for the sake of business expansion must be balanced against the integrity and reputation of the profession.
The penalties imposed by ICAI serve as a reminder to the accounting profession about the significance of ethics and following rules. It is crucial that we uphold professionalism at all times so as not to lose public trust in financial reporting and audit process integrity.
In future, regulators and accounting firms need to join hands in fostering transparency, answerability, and observance of regulatory frameworks. This may involve carrying out frequent audits or reviews of compliance systems that would help in detecting any lapses or deviations from the set standards.
To sum up, what the ICAI has done against CA Raj Kumar Agrawal along with EY India Affiliate Entities shows how committed this regulatory body is towards maintaining professional conduct within the field of accountancy. The matter should therefore act as an eye opener for all stakeholders who should then reemphasize their commitment to these values hence protecting its reputation which can only be achieved by abiding with them as well as other legislative provisions aimed at safeguarding such professions.
Summary
What happened?
The Institute of Chartered Accountants of India passed orders against three EY affiliates and a retired partner for professional misconduct also S V Ghatalia & Associates, LLP, and its partner were also issued an order for professional misconduct also, Raj Kumar Agrawal from SRBC & Co LLP faces removal from the institute’s register for three years and a fine of Rs 5 lakh for each case and Tridibes Basu from S V Ghatalia & Associates, LLP, faces similar penalties
What orders?
The orders direct firms and individuals to cease existing arrangements with multinational entities to comply with the Chartered Accountants Act, 1949
What was the misconduct?
First, Joining the international entities and agreeing to referral work and payment for such referrals constituted professional misconduct
Second, the use of visiting cards and email IDs suggesting affiliation with multinational entities was considered misconduct
Third, the practice aimed at benefiting from affiliation for client influence was deemed misconduct under the Chartered Accountants Act, 1949
Source: Case number(s) PPR/HPC/DD/19/INF/18-DC/895/2018, PPR/HPC/DD/20/INF/18-DC/896/2018 and PPR/HPC/DD/21/INF/18-DC/897/2018 and News updates from inter alia economic times
Link source: https://disc.icai.org/reports-orders-of-the-disciplinary-committee-for-the-council-year-2024-2025/
Author Bio
It is high time Indian Govt and Accountant bodies decide to keep away foreign accounting firms from interfering in Indian Accounting , Legal and corporate accounting standards framing functions . We have effective accounting bodies like ICAI , ICMA and ICS who can take care our professional practices and framing of suitable standards . It was a big mistake to bring in international bodies like PWH , EY , etc to Indian context … May be surely these MNCS are powerful enough to influence our Indian Bodies and key persons here …. funny part of the whole issue is most of the international accounting firms have cases against them in the foreign countries for professional lapses and merely because they are foreign some of our guys who are framing the policies have special liking for them for reasons we all know ,,, Good ICAI gave a shock treatment to the Indian firms but sad part the foreign firms have been let off from hooks