ICAI to seek oversight of audit firms

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.