Bringing greater accountability in the accounting profession | Photo Credit: NicoElNino
The government’s move to bring independent oversight to the accounting profession is welcome
The Chartered Accountants, The Cost and Works Accountants and The Company Secretaries (Amendment) Bill 2021, passed by the Lok Sabha on Wednesday, which seeks to tighten the disciplinary process by putting supervision largely in the hands of non-members of the respective institutes may be seen as harsh by the three professional bodies. But these changes are essential for better oversight of India’s accounting and auditing professions in light of multiple financial scams involving large institutions that have come to light in recent years. The Act is based on the findings of a high-level committee that studied the disciplinary processes of the three institutes and found them wanting. Investigations by forensic auditors into scams and by the National Financial Reporting Authority into audit quality have revealed many acts of omission and commission by auditors, which put public money at risk. Yet the three professional bodies — especially The Institute of Chartered Accountants of India (ICAI) — failed to display any alacrity to set their houses in order and discipline or debar erring members.
At the highest levels, the government has been upset over the increasing number of financial scams in Corporate India and the role of auditors in them which ranged from negligence to collusion. The annoyance now reflects in the move to take the disciplinary mechanism decisively out of the clutches of the ICAI. The Boards of Discipline and Disciplinary Committees are to be chaired by qualified external personnel and staffed by a majority of outsiders as members. These outsiders will be picked from a panel to be formed by the ICAI but the government will set the regulations for forming this panel. In short, the government has the final say on the choice of outsider. This shift to independent oversight aligns with global best practices and aims to ensure that disciplinary proceedings against accountants are conducted without fear or favour. It is telling that, of the 557 instances of penal action taken by ICAI’s disciplinary committee in recent years, 165 got off with a reprimand and only seven were debarred from practice. The institutes’ disciplinary bodies will be required to hold timebound hearings of cases. This is much-needed, as data from ICAI shows that 1997 of the 5,829 cases filed with it between 2006 and 2021 remained pending, with 574 undecided for three years. Finally, on repeated misconduct by partners of a firm, disciplinary committees can hold the entire firm instead of just individual partners liable. The fear of total loss of business due to debarment of the entire firm will, hopefully, ensure that auditors stay in line and discharge their duties with utmost care and professionalism.
The ICAI must, however, be relieved that the Parliamentary Standing Committee on Finance’s recommendation to end the former’s monopoly over the accounting profession has not been incorporated into the Act. The idea of an Indian Institute of Accounting, suggested by the Committee, was born out of the inability of the ICAI to continuously tune its syllabus and training to reflect the changing business environment and demands. The ICAI should see the Committee’s recommendation as a warning shot fired across its bow and raise its training standards. Else, it will not be long before it loses its monopoly.
Published on March 30, 2022