Multi-disciplinary Partnership Firm of Chartered Accountants in Practice means the firm which has been approved to practice in its name by the Council of ICAI under Regulation 53B read with Regulation 190 of the Chartered Accountants Regulations, 1988 hereafter referred to as MDP. The Institute of Chartered Accountants of India has issued a FAQ to answers many questions raise through this new mechanism of Multi-disciplinary Partnership Firm of Chartered Accountants in Practice. An attempt is being made here to analyse the matters related to the professional opportunities.
PERMISSIBLE MODES FOR PRACTICE
To form MDP CAs in Practice, at least one partner should be a CA holding certificate of practice. Further As per Section 25 of the Chartered Accountants Act, 1949, Companies not to engage in accountancy. So no company, whether incorporated in India or elsewhere, shall practice as chartered accountants. Hence, MDP CAs in Practice cannot be formed as a company. At present, there are two permissible modes.
- Partnership as per the Indian Partnership Act, 1932.
- Limited Liability partnership as per the Limited Liability Partnership Act, 2008.
Further, Regulation 53B of the Chartered Accountants Regulations, 1988 covers the partnership aspect. The provisions of Section 2(2) of the Chartered Accountants Act, 1949, Clause 4 of Part I of First Schedule to the Chartered Accountants Act, 1949 read with Regulation 53B of the Chartered Accountants Regulations, 1988 permit CAs to enter into partnership with the members of following professional bodies:
(a) Company Secretary, member, The Institute of Company Secretaries of India, established under the Company Secretaries Act, 1980;
(b) Cost Accountant, member, The Institute of Cost and Works Accountants of India established under the Cost and Works Accountants Act, 1959;
(c) Advocate, member, Bar Council of India established under the Advocates Act, 1961;
(d) Engineer, member, The Institution of Engineers, or Engineering from a University established by law or an institution recognized by law;
(e) Architect, member, The Indian Institute of Architects established under the Architects Act, 1972;
(f) Actuary, member, The Institute of Actuaries of India, established under The Actuaries Act, 2006.
Any person other than those prescribed above cannot be a partner in MDP CAs in Practice. Further, we can share our fees with the MBA as per clause 53A but As per Clause 4 of Part I of the First Schedule, MBA cannot become a partner in MDP CAs in Practice. Regulation 53A(1) of the Chartered Accountants Regulations, 1988 covers the profit-sharing aspect with the members of prescribed professional bodies, and Regulation 53A(3) covers the profit-sharing aspect with the persons having prescribed professional qualifications. These Regulations allow profit-sharing even without entering into a partnership. Regulation 53B(2) of the Chartered Accountants Regulations, 1988 also allows “Professional bodies or institutions outside India whose qualifications relating to accountancy are recognized by the Council under sub-section (2) of section 29 of the Act. The said clause is based on reciprocity but as of date, the Council of ICAI has not specified any foreign qualifications equivalent to CA for purposes of MDP CAs in Practice.
PARTNERSHIP DEED IS A VITAL DOCUMENT
The Chartered Accountants Act 1949 read with the Chartered Accountants Regulations, 1988 does not prohibit any partner of MDP CAs to practice in their individual name at the same time, it is the discretion of MDP CAs in Practice to permit its partners to practice in their individual capacity. In case the partnership deed is silent on this aspect, the provisions of the Chartered Accountants Act, 1949 and the Chartered Accountants Regulations 1988 shall apply. The sharing of profits will be decided among the partners as agreed among them and prescribed in the partnership deed. Further, the disputes among the partners will be settled as agreed among the partners as prescribed in the partnership deed. Otherwise, provisions of the Indian Partnership Act, 1932 or the Limited Liability Partnership Act, 2008, as may be applicable, will apply.
A chartered accountant is required to verify the professional qualifications of partners who are not members of ICAI as a duty to submit the documentary evidence in case of such partners from other professions. This documentary evidence needs to be attested by a CA in practice who is not related to the MDP CAs in Practice. It is the duty of the CA who attests to the above documentary evidence to verify the truth and validity of the certificate of membership of the prescribed professional bodies or the degree of the recognized University in the case of engineering graduates. However, there is no need to obtain the permission of the other professional bodies prescribed under Regulation 53B of the Chartered Accountants Regulations, 1988.
A CA partner of MDP CAs in Practice can become partners in other firms or engage in other occupations as agreed among the partners as per their partnership deed. In the case of a partner who is a chartered accountant, for his engagement in any other business or occupation or part-time employment, the provisions of Regulations 190A and 191 of the Chartered Accountants Regulations, 1988 shall apply. In the case of a partner other than a chartered accountant, the provisions of the relevant Act along with its Regulations or Rules shall apply.
MDP & ITS IMPACT ON COMPANY AUDITS
There are no numbers prescribed under the Chartered Accountants Act, 1949 or the Chartered Accountants Regulations, 1988. However, to be eligible to undertake statutory audit under the Companies Act, 2013, the prescribed thumb rule is that MDP CAs in Practice should have the majority of CA partners in MDP. This “Majority criteria” for the purpose of computing eligibility of MDP CAs in Practice for the purpose of appointment as statutory auditor under the Companies Act, 2013 shall be calculated both on the basis of the number of partners as well as their aggregate share of profits in MDP CAs in Practice so that the majority criteria is clearly established. It is to be noted that partners of partnership firms have joint and several liability and partners of limited liability partnership have limited liability. Keeping both aspects into consideration, the above condition for the majority shall apply.
MDP CAs in Practice is not eligible for statutory audit under the Companies Act 2013 in case majority of its partners are non-CA. We have to see the provisions as narrated in Section 141 of the Companies Act 2013. Section 141 of the Companies Act 2013 states Eligibility, Qualifications, and Disqualifications of Auditors.
(1) A person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant: Provided that a firm whereof majority of partners practicing in India are qualified for appointment as aforesaid may be appointed by its firm name to be the auditor of a company.
(2) Where a firm including a limited liability partnership is appointed as an auditor of a company, only the partners who are chartered accountants shall be authorized to act and sign on behalf of the firm.
(3) The following persons shall not be eligible for appointment as an auditor of a company, namely:—
(a) a body corporate other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008;
(b) an officer or employee of the company;
(c) a person who is a partner, or who is in the employment, of an officer or employee of the company;
(d) a person who, or his relative or partner—
(i) is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company:
Provided that the relative may hold security or interest in the company of face value not exceeding one thousand rupees or such sum as may be prescribed;
(ii) is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of such amount as may be prescribed; or
(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for such amount as may be prescribed;
(e) a person or a firm who, whether directly or indirectly, has a business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature as may be prescribed;
(f) a person whose relative is a director or is in the employment of the company as a director or key managerial personnel;
(g) a person who is in full-time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies;
(h) a person who has been convicted by a court of an offense involving fraud and a period of ten years has not elapsed from the date of such conviction;
(i) a person who, directly or indirectly, renders any service referred to in section 144 to the company or its holding company or its subsidiary company.
(4) Where a person appointed as an auditor of a company incurs any of the disqualifications mentioned in sub-section (3) after his appointment, he shall vacate his office as such auditor and such vacation shall be deemed to be a casual vacancy in the office of the auditor.
Accordingly, MDP CAs in Practice is not eligible for statutory audit under the Companies Act 2013 in case majority of its partners are non-CAs.
MDP & ITS IMPACT ON TAX AUDITS
MDP CAs in Practice can undertake Tax Audit engagement. A tax audit can be conducted by a Chartered Accountant or a firm of Chartered Accountants. If it is performed by the latter, the name of the signatory who has signed the report on behalf of the firm must be stated in the audit report. The signatory must provide his/her membership number while registering in the e-filing portal. Tax audits can also be performed by the Statutory Auditor. It is important to note that, Chartered Accountants have a limit on the number of tax audit reports that can be filed. The maximum number of tax audits that can be undertaken by a Chartered Accountant is limited to 60. In the case of a firm, the restriction on tax audit limit will be applicable for each of the partners. However, there will not be any benefit of a Non-CA partner for the purpose of calculating the limit of the tax audits. Further, certain prohibitions on the appointment of tax auditors, such as part-time practice, indebted, exceeds the fee payable for carrying out the statutory audit of the same undertaking/company, assigned with the task of writing and maintaining the books of account of the assessee, by any partner or employee belonging to such firm and internal auditor are applicable on MDP also.
MDP & ITS IMPACT ON BANK AUDITS
There is no specific reply from the Institute about its impact on the empanelment’s being maintained by Banks, Urban Cooperative banks, and regional rural banks. However many changes are required in the eligibility criteria of the respective banks. The institute has taken a general approach against this vital question of eligibility and plainly stated that MDP CAs in Practice can accept other engagements like bank audits, audits of the co-operative society. This is in view of a fact that MDP CAs in Practice can render all services as prescribed in Section 2(2) of the Chartered Accountants Act, 1949 read with Regulation 190A of the Chartered Accountants Regulations, 1988. It can also render services allowed to be performed by other professionals who are its partners. Section 2 (2) of the Chartered accountant’s act prescribes that:
A member of the Institute shall be deemed “to be in practice” when individually or in partnership with chartered accountants in practice, or in partnership with members of such other recognized professions as may be prescribed, he, in consideration of remuneration received or to be received,−
(i) engages himself in the practice of accountancy; or
(ii) offers to perform or performs services involving the auditing or verification of financial transactions, books, accounts or records, or the preparation, verification or certification of financial accounting and related statements or holds himself out to the public as an accountant; or
(iii) renders professional services or assistance in or about matters of principle or detail relating to accounting procedure or the recording, presentation, or certification of financial facts or data; or
(iv) renders such other services as, in the opinion of the Council, are or may be rendered by a chartered accountant in practice, and the words “to be in practice” with their grammatical variations and cognate expressions shall be construed accordingly.
So, MDP CAs in Practice will be eligible for empanelment with various agencies provided it satisfies the eligibility criteria for empanelment prescribed by various agencies.
NON-CA PARTNER BE IN CHARGE OF BRANCH OFFICE OF MDP
A chartered accountant is required to main his office as per section 27 of the Chartered Accountant Act which prescribes, Maintenance of Branch Offices” of the Chartered Accountants. By virtue of Section 27 of the Chartered Accountants Act, 1949, only chartered accountants are permitted to be in charge of the branch offices of MDP CAs in Practice. However, it may be noted that in terms of the proviso given in sub-section (1) of Section 27 of the Chartered Accountants Act, 1949, the Council of ICAI has the power to grant exemption from the aforesaid requirement in suitable cases. In case, MDP CAs in practice desires that a non-CA partner be made in charge of any branch office, it may make a request to the Council of ICAI in this regard.
Section 27 of the Chartered Accountants Act, 1949 prescribes that:
(1) Where a chartered accountant in practice or a firm of such chartered accountants has more than one office in India, each one of such offices shall be in the separate charge of a member of the Institute. Provided that the Council may in suitable cases exempt any chartered accountant in practice or a firm of such chartered accountants from the operation of this subsection.
(2) Every chartered accountant in practice or a firm of such chartered accountants maintaining more than one office shall send to the Council a list of offices and the persons in charge thereof and shall keep the Council informed of any changes in relation thereto.
EXISTING CA FIRM Vs MDP CAS IN PRACTICE
In case of conversion of existing CA firm into MDP CAs in Practice, a new FRN will be required. These provisions cover both cases i.e. conversion of existing CA firms into MDP CAs in Practice as well as the formation of new MDP CAs in Practice. Networking will be allowed for MDP CAs in Practice provided it satisfies the various conditions prescribed in the “Guidelines for Networking” issued by the Council of ICAI. MDP CAs in Practice shall have a distinct name which shall be approved by the Institute. To distinguish MDP CAs in Practice from other CA firms, the suffix “multidisciplinary partnership firm of chartered accountants in practice” shall be used after the name of MDP CAs in Practice.
NON-CA AS ENGAGEMENT TEAM GIVEN IN SQC 1 AND SA 220
Non-CA of MDP CAs in Practice can be part of the engagement team in terms of the definition of the term “engagement team” given in SQC 1 and SA 220. Definition of the term “engagement team” as per SQC 1 and SA 220 is all personnel performing an engagement, including any experts contracted by the firm in connection with that engagement. The term “engagement team” excludes individuals within the client’s internal audit function who provide direct assistance on an audit engagement when the external auditor complies with the requirements of SA 610 (Revised). Further, the definition of the term personnel as per SQC 1 and SA 220 is partners and staff.
From the above definitions, it is clear that the engagement team includes partners. Accordingly, non-CA partners of MDP CAs in Practice can be part of the engagement team in terms of the definition of the term “engagement team” given in SQC 1 and SA 220.
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