Accounting profession watchdog Institute of Chartered Accountants of India (ICAI) will seek an amendment to the Chartered Accountants Act to expand its regulatory powers to cover audit firms.
Currently, the institute has powers to regulate only its members — chartered accountants — but does not have a specific mandate under law to oversee audit firms operating in the country.
The move comes on the heels of the Bombay High Court’s August 13 ruling that the Securities & Exchange Board of India (Sebi) could proceed with its enquiry into audit firm PriceWaterhouse for its alleged role in the Satyam scam.
The High Court had observed that Sebi has the power to act in the interests of shareholders of listed companies. However, it noted that actions against professionals (chartered accountant, in this case) could be taken only by the body that regulates that profession. The court observation triggered a debate on whether Sebi could bar PriceWaterhouse from working with listed companies, if proven guilty.
ICAI is attempting to arm itself with powers to monitor and, if necessary, wield regulatory powers over audit firms right from the time of registration. The ICAI council, the apex decision-making body, is expected to finalise the institute’s recommendations tomorrow. Once finalised, the proposal will be submitted to the Ministry of Corporate Affairs. The institute had suggested the need to strengthen its powers to regulate audit firms in its report on the Satyam accounting fraud submitted to the ministry few months ago. Currently, the disciplinary committee of ICAI holds individual chartered accountants responsible for any malpractices or discrepancies that occur during an audit. ICAI has powers to suspend the registration of such persons if found guilty. However, the institute has no power to take similar action against erring audit firms.
The proper solution for regulating the profession of public accountants - which includes - chartered accountants, cost accountants, company secretaries - is to go by the best global practice in this regard - establish an independent regulatory body on the model of US - PCAOB. Public accounting is not just about financial audits conducted by MEMBERS OF ICAI, but also includes cost audits conducted by ICWAI members, secretarial audit conducted by ICSI, and also tax audit/VAT audits. All the audit & assurance firms shall be licensed, disciplined and also regualted by way of Quality review, Peer review etc., by this independent body. It must be remembered that ICAI has failed to perform the regulation job over the last several years and therefore, it is apt that its regulatory powers are stripped. One of the internal control principles is -no body shall be a judge of his own work. Empowering ICAI further will be an ill-advised step and not as per the best global practice.
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