The Hindu Business Line : Bid to prevent undercutting — ICAI prescribes base-level audit-fee

THE Institute of Chartered Accountants of India (ICAI), it appears, is keen to ensure that partners of mid-sized and large firms do not "under-cut" audit fees to the detriment of smaller firms and one-man practice units.

The institute, which is the regulator of the chartered accountancy profession, has now prescribed a base level of audit fees (a level below which audit fees cannot be charged or received) for a person in practice who is a partner of a firm with 4-8 partners or a firm with more than eight partners.

ICAI has now said that a member in practice and a partner of firm having 4 or more partners but less than eight partners (with at least one partner holding certificate of practice for five years or more) would be deemed to be guilty of professional misconduct if he accepts audit work on behalf of the firm for a audit fee of less than Rs 5,000 per annum (in cities with population of 2 million or above).

In cities/towns having population less than 2 million, the base level for such category of firms has been fixed at Rs 3,000 per annum.

For a person in practice and a partner of a practicing firm having eight or more partners (with at least one holding certificate of practice for five years or more), the institute has stipulated that the audit fees that can be accepted for audit work cannot be less than Rs 9,000 per annum in the case of cities with population of 2 million or more and Rs 6,000 per annum in the case of cities/towns having population less than 2 million.

This stipulation on the audit fees would, however, not include reimbursement of expenses.

A senior ICAI official told Business Line that this regulatory move would to an extent remove "under-cutting" of audit fees by certain sections of auditing community. "Responsibility has been cast on auditors coming under the two categories (firms with 4-8 partners and firms with 8 or more partners) to conform to the audit fee restriction," the official said.

The restriction on audit fees becomes operative for all audits relating to accounting periods beginning on or after April 1, 2004.

ICAI has, however, stipulated that this audit fee restriction would not be applicable for audit of accounts of charitable institutions, clubs, provident funds, where the appointment is honorary i.e. without any fees.

This restriction would also not be applicable in respect of statutory audit of branches of banks including regional rural banks. Further, this restriction would also not be applicable on audit of newly formed concerns relating to two accounting years from the date of commencement of their operations and also for certification or audit under the Income-Tax Act or other attestation work carried out by a statutory auditor.