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D. Murali

CHENNAI, Dec. 25

EAGER not to compromise the independence of the auditors, the Institute of Chartered Accountants of India (ICAI) prohibits its members from a host of services. Thus, as auditing firms, CAs cannot perform bookkeeping, maintain accounts, do internal audit, design any information system that is a subject of audit or internal audit, or act as broker or investment advisor.

With the submission of the report by the Naresh Chandra Committee, an axe is in sight for the `body-shopping' done by CA firms, as also on BPO.

The Committee believes that it is necessary to provide an explicit list of prohibited non-audit services and so recommendation 2.2 states that the following services should not be provided by an audit firm to any audit client: Accounting and bookkeeping services, related to the accounting records or financial statements of the audit client; internal audit services; financial information systems design and implementation, including services related to IT systems for preparing financial or management accounts and information flows of a company; actuarial services; broker, dealer, investment adviser or investment banking services; outsourced financial services; management functions, including the provision of temporary staff to audit clients; any form of staff recruitment, and particularly hiring of senior management staff for the audit client; valuation services and fairness opinion.

Further in case the firm undertakes any service other than audit, or and the prohibited services listed above, it should be done only with the approval of the audit committee. If one were to set this against the backdrop of what is listed in the website of the ICAI under 'services by CA', there are conflicts between what is seen as okay by the institute and what is now frowned upon by the Committee.

For instance, "appraisal of personnel policies and practices", and "assisting in the selection of executive personnel in the areas of production, marketing, accounts, data processing, personnel, general administration and so on" are tasks that CAs can engage in as a 'management consultancy' avenue.

That most audit firms have long been seen as sweatshops engaging poorly paid apprentices is no secret. What is of a recent phenomenon, however, is for firms to extend this phenomenon to the now popular BPO, or business process outsourcing. Accordingly, where clients outsource services, auditors step in as a provider, usually on a `cost-plus' basis. The ICAI has not brought out any guidance to its members on performing BPO, though the institute has been considering a ban on `cost-plus' method of computing remuneration because it could make inroads into professional liability.

With the Committee coming down heavily on `the provision of temporary staff to audit clients', a business avenue that many CAs have been exploiting of late could see an end. Provided the recommendations are accepted by the Government.

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