Special cell to hear cases against CAs for registering Chinese shell firms

When asked what action can be taken against CAs who are found guilty, Debashis Mitra said they could be removed from their post for as long as their lifetime

Saying that a special cell has been constituted under the Disciplinary Committee to examine the nature of offences of Chartered Accountants involved with Chinese companies, President of Institute of Chartered Accountants of India(ICAI) Debashis Mitra said that the cases are likely to be disposed of at the end of the year on a fast track basis. 

“We have compiled a list of companies where CAs were involved and have issued notices to all of them,” he said. 

Explaining the process, he said first a notice is said to the accused CA. When he/she replies, the Director of Discipline committee has to determine whether the person is prima facie guilty or not. 

The President also informed the mediapersons that there have been 400 cases this year related to misconduct of Chinese companies. Out of those accused, 50 percent of them are CAs.

Commenting on the nature of the alleged misconduct of CAs, he said that some Chinese companies had registered the address of a particular place on paper but in reality their office did not exist there. Some shell companies were also formed by giving the address of the CA’s as the address of the company. 

“There are a substantial number of such cases. How many exactly I cannot comment on. But these cases will likely be disposed of in 3-4 months. Among such cases, most of the companies are not listed companies,” he said. 

When asked what action can be taken against CAs who are found guilty, Mitra said they could be removed from their post for as long as their lifetime. 

He also said the ICAI is trying to educate the CAs on the ethics of the profession. “We a have zero tolerance policy for professional misconduct,” he said. 

Saying that they have not been asked for their views by Sebi related to changes in Section 135 of Companies Act(Corporate Social Responsibility), he said personally he thinks ‘it is not a bad idea.’

Recently, the Ministry of Corporate Affairs (MCA) proposed amendments to the Companies Act that proposes to mandate joint audits for a certain class of companies. “We agree with this proposal,” Mitra said. 

Recently EY split up its audit and consulting business. When asked whether this would help improve the audit quality, Mitra said EY has a separate entity as a consultant. “We have set up a centre of audit quality and the centre has developed audit quality maturity. These are a set of questions by the means of which a firm of chartered accountants can self evaluate. Where exactly it stands vis a vis audit quality is to be determined,” he said. 

Talking about the mandatory rotation of auditors in the company Mitra said they will conduct a study on its impact. Mandatory auditor/audit firm rotation requires that companies change their auditor after a legally set period of time. “We will definitely do an independent study on the effects of its policy on the independence of auditors,” he said.