An unpleasant truth is better than a comforting lie…
The noble profession of Chartered Accountancy is one of the few professions which witnesses’ equal participation from women and men sees no discrimination on basis of religion, caste or colour but there is a different kind of discrimination which most people don’t see till the point they start to feel it.
Discrimination against small/medium-sized firms
- Discrimination against small/medium-sized firms
- Reasons to believe Firms discrimination
- Measures to overcome from the challenges being faced
- Tendering of CA services
- Statutory Bank Branch Audits
- Statutory PSU Audits
- Concurrent Audits
- RRB Audit
- Cooperative Statutory & Concurrent Audits
- Tax Audit
- Trust / Society Audit U/S 10 BB
It is no secret that small and medium-sized CA firms have been neglected by the ICAI since years. 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 traveled. We worked hard when others were making memories with friends/families because we believed in our profession. 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.
Reasons to believe Firms discrimination
There are established reasons to believe that the regulators’ mechanism of categorization of 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. Some of the vital bottlenecks for small categories can be summarized as follows
i) NIL opportunity where work is allotted through tenders.
ii) No statutory Bank Audit for the first three years of the practice.
iii) The 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 the specified sum is required to be maintained otherwise ineligible.
v) No concurrent audit to sole proprietors. Only Partnership firms are allowed that too for four 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.
Measures to overcome from the challenges being faced
One does not need to be a rocket scientist to tell that small/medium sized CA firms are the backbone of a developing economy and soul of our profession. Without them, small businesses cannot flourish or remain organized. The souls of our profession are those chartered accountants around the country working day in and out. Unfortunately, their contribution is yet to be recognized. Any person who has ‘CA’ in front of his/her name has worked equally hard to get it and deserves equal opportunities to work. We together make the profession great and cannot allow a small number of players to control it.
Tendering of CA services
Tendering abuse shall be dealt with 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.
Statutory Bank Branch Audits
A 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 categorization system is illogical to be scrapped. As the Govt. is retaining 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 wrongdoings at such branches. 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.
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. 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 limit are reserved 100% for the local sole proprietors.
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.
Cooperative Statutory & Concurrent Audits
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.
Trust / Society Audit U/S 10 BB
Presently Tax Audit is 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.
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 / Midsized CA Firms are only considered for Government sponsored jobs and assignments for any organization receiving Government Grant.