Letter to BS: No CAs in Govt's regulatory body for accounting professionals

This is in reference to “No CA’s in Centre’s new regulatory body for accounting professionals” (March 8). The news item stated that the National Financial Reporting Authority (NFRA) will be a body run by retired bureaucrats. If that is the case, the bureaucrats will ultimately have to seek help from CAs as the profession of accounting and auditing has become technical, thanks to the complex agreements that take place in commercial world. 

For example, when one books a cab, that booking provides the passenger loyalty points by some airline company, banks, e-wallets etc. Thus, the booking of a cab not only impacts the revenue of the company running and managing the cab service but also airline companies, banks and other companies. The basics of accounting remain the same that is debit and credit. However, the issues related to the agreement stated above is what to, how to and when to debit and credit. How to account and audit for such rights and obligations has been the domain of the chartered accountant. The complexities in the financial institutions and banks is huge. The function of the NFRA is to regulate the standards on accounting and auditing and oversee their compliance. 

As a corollary, it becomes essential that such a body is made up of people who have knowledge of these standards. Such a regulator should also participate extensively in international meetings of accounting and audit standard setters to put forth India’s perspectives. The Ministry of Corporate Affairs notifies the accounting standards as recommended by the Institute of Chartered Accountants of India. However, the question that remains unanswered is how many in the ministry really understand those standards and their application. In this context, an example is the recent notification by the Ministry of Corporate Affairs exempting certain government companies from recognising deferred taxes. The underlying principle of accounting is that accounting has to be as per substance and not form. It is illogical to exempt a class of companies from application of a standard based on whether they are companies controlled by the government or not controlled by the government. If the regulator consists of non-CAs, then such misleading requirements to pacify some industries / companies allowing smoothening of profits rather than providing true and fair view will only increase. I doubt whether such a move will make the financial reporting practices in India in line with internationally recognised best practices.

Manish C Iyer via email