Audit profession needs independent regulator

The need for change has been felt at the highest level

The debate over an independent regulator for chartered accountants (CAs) has been rekindled by the Kotak panel report on corporate governance.

The panel has recommended that the Quality Review Board (QRB) be strengthened to meet the independence criteria laid down by the International Forum of Independent Audit Regulators (IFIAR), an international body that comprises independent audit regulators of 52 jurisdictions. India is not yet a member of the IFIAR but the Institute of Chartered Accountants of India (ICAI) has maintained that the QRB has applied for IFIAR membership, Business Standard reported recently.

Though several panels of wise men have arrived at such observations in the past, the professional body, which doubles as the regulator, has repeatedly voted for the status quo.

This time too it has dissented. But, its case, standing on very weak legs, was further weakened by its own track record in punishing wrongdoers.

Two cases that caused significant pain to the larger system and affected small investors but have not seen closure are of Global Trust Bank and Satyam Computer.

In the case of the latter, the efforts of the Securities and Exchange Board of India (Sebi) to proceed against the auditor have dragged on for years. A Supreme Court missive in January required the matter to be closed in six months.

A Hindu article in June said the matter would take “15-20 weeks” more. Even this period has almost elapsed.

While the existing framework of penal proceedings for the profession is inefficient in dealing with offences in a time-bound manner, it also obstructs other regulators such as Sebi from taking action under their own laws.

As a result of this impunity, a number of professionals have built their revenue models on not so clean structures. Behind every one of the shell companies suspended by the Ministry of Corporate 

Affairs (MCA), there are professionals.

It is possible a good number of disqualified directors are people from the audit profession themselves.

While the MCA is trying its best to weed out unscrupulous elements within the corporate universe, it is not clear what steps the professional body is taking to prevent professionals from registering more such companies afresh.

The problems with the profession and the way it is being governed have been recognised at the highest level.

Referring to CAs who might have helped entities in dealing with illicit funds after demonetisation, in a function organised by the professional body in July, Prime Minister Narendra Modi had said he heard that after November 8, CAs had to do a lot of work but he was not sure how many worked for their clients and how many for the nation.

Modi also wondered why action had only been taken against just 25 CAs for irregularities, while more than 1,400 cases have been pending for many years, a report by the Indian Express had said then.

According to Modi, CAs need to safeguard society's economic health and they have a big responsibility. “Your signature is more powerful than that of the prime minister and the government also believes the accounts signed by you,” he said.

A strong and independent regulator is necessary to restore the faith and credibility in the profession. The prime minister, who has taken drastic measures to rid society of corruption, should zero in on systemic changes and bring them about quickly. Too much discussion has happened, too many papers have been written and read.

It is time now for decision and action.