It is unlawful to discriminate on the ground of the profession, trade, occupation or calling discrimination as reasonable in some circumstances. The freedom to practice any profession, or to carry on any occupation, trade or business is well defined in the Constitution of India. Article 19 (1) (g) of Constitution of India provides right to practice any profession or to carry on any occupation, trade or business to all citizens. It confers a general and vast right available to all persons to do any particular type of business of their choice. Any distinction, exclusion or preference made on the basis of category of a Chartered accountant firm is totally uncalled and unfair to the profession. But the same is going on since long. Now it seems that its unbeatable and will go on without nullifying or inequality of opportunity in this profession. It is no secret that small and medium-sized CA firms have been neglected by the ICAI since long. The profession of Chartered Accountants needs the 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. There are many grievances against the Alma Mater for not protecting the interest of small firms however in the recent past many outside agencies have bombarded the firms and as usual there is no definite plan to deal such situation except claiming the action as overstepped or unlawful.
The profession of Chartered accountancy is one among the prevailing profession in India. The profession is regulated by the Alma Mater, The Institute of Chartered accountants of India. The profession is free technically but there are established reasons to believe that the regulators’ mechanism of categorization of Chartered accountants’ firms is not working well. The overall categorization is of four types. Category 1st, 2nd & 3rd belong to firms having partners. However, category 4th is a category for sole proprietors. The sufferings are for the category 3rd & 4th. The professional opportunities are less and there is stiff competition among such firms as 70% of the total firms fall under these categories. 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.
The government, authorities and other stakeholders are required to be effectively communicated that they need not give overemphasis 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 sole proprietors / Mid-sized CA Firms are only considered for Government sponsored jobs and assignments for any organization receiving Government Grant.
Some of the vital threats and bottlenecks for small CA Firms/Small City firms can be summarized as follows;
The National Financial Reporting Authority (NFRA) has released its Consultation Paper on Statutory Audit and Accounting Standards for Micro, Small and Medium Companies (MSMC’s). The focus is on medium, small and micro companies with net worth below 250 crores which are crucial for differentiating Accounting Standards and Ind AS companies. The Consultation Paper has sought views of various stakeholders however it is understood that such companies may be exempted and thrown outside the scope and ambit of audit and accounting standards. The council is in denial mode for everything by declaring that NFRA does not have jurisdiction over micro, small and medium companies. It is not within its purview to propose whether an audit of a particular class of companies is required or not. ICAI argued that, Audit is considered to be one of the pillars of the effective corporate governance system in companies, as it also helps in mitigating the risk of failure in implementation of corporate governance.
Though the issue is related to small companies but definitely this exercise shall be a discrimination against small firms of Chartered accountants as majority of such small companies are being served by the small firms of Chartered accountants. The effect of such decision will definitely be fatal. Merely denial the authority of the NFRA and not taking up the issues boldly with the MCA is the root cause of the sliding such opportunities.
The profession is already suffering from many bottlenecks. A timely redress-al to the faulty pattern of not allotment or non-consideration is the need of the hour. Few of the major bottlenecks can be summarized as follows.
NIL opportunity where work is allotted through tenders. Tendering is a menace for the profession of Chartered accountancy. The abuse should be dealt strongly. In case of tender acceptance by any authority, a cost sheet by a CA should 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 the 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. The regulator should formulate the guidelines to regulate the tendering process under Clause (6) of Part I of the first schedule.
Recently, RBI has scrapped an old policy of branch audits having 20 Crore advances. There shall be cascading effect of such decision as the branches will drastically reduce. Once the Govt. has scrapped limit of advances of Rs.20 crores, the common member was demanding that the branches falling below this limit should be audited once in 3 years instead of the present system of 5 years. Their demand was justified, which is an extra-long period and gives impetus to wrongdoings at such branches. The council has failed to address any such issue. However, to streamline the process of auditing the public money, few decisions should be reverted. The correction measures should include that the statutory bank branch audit should be made compulsory for all bank branches, irrespective of the number of advances and/or deposits of the branch. 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 the year of experience. The individual and sole proprietors should have at least 70 % of the total statutory bank audits. The basic structure for allotment of the 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. The earlier condition of at least allotment of 40% work of statutory Bank Audit in the case of sole proprietors dispensed with. The same should be restored.
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. For the first five years, sole proprietors are not eligible for such an 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, the number of Chartered Accountant employees. So even after five years, there is very remote possibility to get an 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 the 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.
RBI issued the guidelines for the concurrent audit portfolio. 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 limits are reserved 100% for the local sole proprietors. The concurrent audit allotments are being made in bulk of branches. This allotment procedure is marked by many issues which requires an immediate readdress. The policy of one concurrent audit per member should be implement without delay. The Council has to take an appropriate decision on the issue through her own mechanism.
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 taken from Category IV and Sole Proprietors firms may not be considered for statutory audit of RRBs. It is totally surprising that the vital changes were made against the sole proprietor firms which are all most 70 % of the total firms. 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 uppermost 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.
Sole proprietor firms are out of eligibility norms and as per agreed policy. This policy embarks that as far as possible CA firms falling in Category I & II are to be chosen. However, firms of III categories 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 is 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 through 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 the 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.
There is no motivation for a young CA today to start his/her own practice. A profession which was once chosen by many to become the master of their fate and captain of their souls no longer serves this purpose. The only option is to join the big players and work for them. It’s either ‘their way or highway.’ Our profession has one of the best brains present out there. Our women and men deserve the respect and independence which they worked hard to achieve. We are the ones who chose to walk the path less travelled. Discrimination must stop and a level playing field be granted.
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