The Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India and Institute of Costs and Works Accountants of India have failed to discipline errant auditors despite PM prod.
The government is considering to scale up its supervision of three professional institutes – the Institute of Chartered Accountants of India (ICAI), Institute of Company Secretaries of India and Institute of Costs and Works Accountants of India. The move comes as the three institutes have failed to discipline errant auditors, despite being ticked off by Prime Minister Narendra Modi 15 months ago.
The government action is based on a report of the high-level committee headed by retired bureaucrat Meenakshi Datta Ghosh that had recommended a massive overhaul of the disciplinary actions taken by the three professional bodies — ICAI, Institute of Company Secretaries of India and Institute of Costs and Works Accountants of India — although the focus is largely on the auditors.
The committee, whose report has not been made public, had recommended that the ministry of corporate affairs should appoint directors of discipline and secretaries in all the three professional institutes. It is proposed that these functionaries be government officers and they may be appointed in the same way as those in autonomous bodies.
The committee has suggested that the disciplinary body should be independent of the institutes and has also pointing out that the current mechanism needs to be restructured. It has sought to shorten the window of timeframe to dispose off cases to one-year, instead of three-to-five years taken at present.
For this, a single-stage process in the final stage is proposed, instead of two at present. The committee has also called for reducing the practice of frequent adjournments.
The government move comes weeks after it set up the National Financial Reporting Authority that will take over ICAI’s disciplinary powers related to listed and large companies. Besides, audit firms, which were till now unregulated, have been brought under the jurisdiction of the new entity. Although the law empowers the government to transfer all disciplinary powers to NFRA, it has refrained from doing so, despite auditors attempting to block the new entity.
Notably, despite the PM’s prod, ICAI has refused to even disclose data on action initiated by it, including on cases referred to it by government agencies, according to media report.
In fact, an assessment of 440 listed and public interest companies by Quality Review Board, covering 85% of the market cap of BSE and NSE, has revealed that less than 25% of the cases referred by it to ICAI were taken up for disciplinary action. The outcome of these cases is not known. In the past, ICAI has countered the government, saying that a formal complaint was often not registered by its agencies and only a reference was made.
However, it is said that even this was enough reason for the institute to at initiate disciplinary action.
The committee had also recommended the government to merge the disciplinary committee and the board of discipline and suggested that members elected to the institutes’ councils, the top decision-making body, should recuse themselves in case they are subjected to any disciplinary action.