Economy

Bringing erring auditors to book: Parliament passes Bill to overhaul disciplinary mechanism

K.R. Srivats | Updated on: Apr 05, 2022
Union Finance Minister Nirmala Sitharaman

Union Finance Minister Nirmala Sitharaman | Photo Credit: -

Non-members will now be Presiding Officer in Disciplinary Committees of CA Institute, Cost Accountants Institute and Company Secretaries Institute

 

The disciplinary mechanism in the three professional bodies — chartered accountants, company secretaries and cost accountant institutes— will now stand overhauled with Parliament on Tuesday approving an amendment Bill for this purpose.

Replying to the discussion in the Upper House on the Chartered Accountants, The Cost and Works Accountants and The Company Secretaries (amendment) Bill 2022, Finance Minister Nirmala Sitharaman said the amendment Bill’s main intent is to bring more transparency in the functioning of the institutes, especially their disciplinary matters and raise the quality of disciplinary process.

Finance Minister highlighted that in an era where self-regulatory model has come to question, this model cannot meet the expectations of society. 

“Our country has witnessed rapid changes in the way economy has progressed. At this time, sanctity of audited financial statements has to be maintained. We need to have favourable investment climate. I recognise the role of the three professions in our corporate structure. We need to bring in a level of accountability”, she said.

Sitharaman also rejected several opposition members’ suggestion that the Bill should be referred to a Select Committee of Parliament.

With Parliament now passing the Bill, a non-member would become a presiding officer of the disciplinary committee in these institutes. However, a solace for the three institutes is that the government would be appointing the presiding officer only out of the names recommended by their respective Central Council.

Sitharaman did not see merit in the contention of certain opposition members that having a non-member as a Presiding officer of disciplinary committee in three institutes would dilute their autonomy.

Some Opposition members had pointed out that in other professions such as law and medical field, the conduct of their members are judged by members of their profession. This submission, however, did not pass muster with the Finance Minister

Sitharaman highlighted that changes being ushered in to the disciplinary mechanism are in line with international best practices. 

Globally, the conduct of chartered accountants, particularly those who are auditors of public interest entities are regulated by people who are not chartered accountants (independent regulators), she said.

“Even in India, on similar lines we have set up NFRA, which only has non CAs as full time members”, Sitharaman added.

Composition of disciplinary panel

As part of the revamp of the disciplinary committee, the Bill had proposed a change in composition of the Disciplinary Committee so as to introduce a 2+3 formula (two Institute nominees and three non-Institute members) instead of the current composition of 3+2 (three institute members and two government nominees). Also the Bill stipulated that presiding officer has to be a non-member to be appointed by the central government from a panel to be recommended by the Councils of the three respective institutes.

Sitharaman also defended the government move to go in for a coordination committee to oversee the functioning of three institutes. However, she highlighted that the three respective Acts will continue to govern the functioning of the institutes. Standing Committee on Finance had recommended that an industry representative should be head of the Coordination committee instead of the proposed move to appoint the MCA Secretary as the head of the committee. This suggestion was not accepted by the government.

It maybe recalled that the CA Institute had recently said the disciplinary committee revamp, proposed in the Bill, was not the best outcome for it and therefore had written to the Ministry of Corporate Affairs seeking a re-look at the provision, particularly with regard to the composition of disciplinary committee and the Board of Discipline.

The ICAI had preferred continuation of the 3+2 formula instead of the proposed 2+3 formula .Also, it had submitted that the presiding officer has to be a member of the institute and a chartered accountant for the disciplinary mechanism to work efficiently.

In a historic move, over 200 amendments were moved to the CA Bill and most all of them got negatived by voice vote. John Brittas from CPM moved over 160 amendments under his name, attracting notice of all those present in the House. CPI member Binoy Vishwam also moved several amendments which got negatived.

Published on April 05, 2022
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