The Hindu Business Line : A Bill of no return

THE relationship between the Institute of Chartered Accountants of India (ICAI) and the Department of Company Affairs (DCA) is assuming the proportions of a melodramatic mega soap. Like the famous song of the Scorpions "Winds of Change", which brings back memories of the destruction of the Berlin Wall, the Act is intended to bring in winds of change in the provisions of the Chartered Accountants Act and Regulations. After the initial confusion over the Companies Auditors Report (CARO), the DCA brought in The Chartered Accountants Bill and just to provide a finishing touch, has decided to take a look into the accounts of the ICAI for the past three years.

The Bill seeks to update certain provisions of the Chartered Accountants Act, 1949 because of the changes that have taken place since 1949 and on the basis of the experience of the ICAI and the Government. The Joint Parliamentary Committee is also believed to have commented on the slow disciplinary proceedings of the ICAI.

The Naresh Chandra Committee also has looked into the auditor-company nexus and suggested changes.

If the intent was all of the above, the Bill disappoints. It seeks to make a ten-fold increase in the fees payable by members for registration as a chartered accountant, obtaining a certificate of practice, the annual membership fee and also the fee to obtain the pedigree "FCA".

The statement of objects and reasons states that the Institute has faced difficulty in increasing membership fee. It is nobody's case that members need to pay fees for the services being rendered by the Institute. But by giving the mandate to the Government, the ICAI appears to have spoilt its case. Members keep paying the Institute for conferences, seminars, books, publications et al apart from contributing to the Chartered Accountants Benevolent Fund.

The ICAI could have made out a strong case to its members justifying an appropriate increase in the fees payable by them. Coming from the DCA, members are bound to protest against a ten-fold hike.

From the existing quorum of the Council of 24 members and six outside nominees, the Bill proposes to increase the quorum to 30 members and 10 outside nominees. Talking about the council, the Bill proposes to restrict nomination to the council for a maximum of three years, denying permission to a president of the Institute from seeking re-election, and in case of dispute in election results, permitting members to make an application to the council who are to forward it to the Central Government who will form a Tribunal to solve the dispute.

One wonders what dispute the DCA expects in election results. Even if there were a dispute, if 40 elected and erudite members cannot solve a problem amongst themselves, how would a member of the Indian Legal System who has held a Grade 1 posting for at least three years resolve it?

The ICAI would be better off without such knotty legislation. The duration of the Council has been increased to four years from the existing three. With the ostensible intent to prevent the jet-setting propensities of members of a fellow Institute, the Bill proposes to ask the council to approve the foreign tours of the president, vice-president and all council members and employees. It would be hard to imagine any of the above just boarding an international flight without the requisite approvals.

One would have expected radical changes in the provisions relating to the Disciplinary Committee (DC). Even here, the Bill disappoints. The DC is to consist of either the president or the vice-president as the presiding officer, apart from two council members and two outside nominees. The Council is to appoint a Prosecution Director for making inquiries. On completion of the proceedings, the council can reprimand the member or remove his name from the register either permanently or temporarily.

The Bill is silent about timeframes to complete cases referred, which defeats the very intention of the Bill to speed up these cases. In typical government legalese, an appellate authority is also proposed, the constitution, qualifications of chairperson, salaries and functioning of which have been incorporated in the Act. The provisions would make one believe that one is reading the provisions of the Income-Tax Tribunal Rules instead of rather than the Chartered Accountants Act.

There is more to come. A Quality Review Board (QRB) is proposed to fix standards for services provided by members, review the quality of services and guide members to improve the quality of services. The ICAI has already constituted and implemented the Peer Review Board and the first lot of peer reviews are due.

Members would be having less time for their normal activities in case the relentless series of outside quality reviews continue. If one goes by the experience with the audits of the Comptroller and General of India (CAG), differences are bound to exist.

Moving over to professional misconduct, the things a chartered accountant cannot do seem to outnumber those that he can. In addition to the 13 embargoes in vogue at present, one is not supposed to disclose information acquired in the course of professional engagements, certify and submit reports on financial statements unless these statements have been examined by him or some other professional colleague, permit his name to be used in connection with an estimate of earnings is such a manner which may lead to the belief that he vouches for the accuracy of the forecast, fail to keep monies of his client in a separate banking account, fail to disclose and report a material misstatement known to him, and so on. This course is certainly not meant for the timid at heart.

The DCA has retained the same clauses of professional conduct for members in service. With CFOs in the limelight over the past few years, one expected belt-pinching measures for them too.

Since establishment in 1949, the ICAI has come a long way in terms of growth. It has done a stellar job in regulating the profession and developing it. The only area where it has missed out could be in continuing to permit the Government to supervise all of its affairs.

A look at the constitution of the Institute of Chartered Accountants in England and Wales, which was set up under the Royal Charter, reveals that the council is the supreme governing body of the Institute responsible for management of the affairs and business of the Institute. One does not see day-to-day interference in the affairs by another governmental organisation. In an era of disinvestment and privatisation in India, the Government wants to retain control over a predominantly service institution. The provisions of the Act give full-blown powers to the Central Government to dissolve the Council of the Institute in case it has failed to carry out the mandate of the Government. Each and every rule made under this Act shall be laid before each house of Parliament.

The newly elected council of the Institute would do well to get the Government shackles removed and run it independently as a professional body at the earliest. Delaying this would only mean appearance before more committees, tribunals and appellate authorities than relevant accounting standards and quality audits. Anything less would be a dose of bad iatric treatment.

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