Regulation Auditors. Accounting bodies to get powers to act against erring firms

The government on Friday moved an amendment Bill to empower the three accounting bodies — the CA Institute, the Company Secretaries Institute and the Cost Accountants Institute — to take disciplinary action against erring firms, a long-pending demand of the professional bodies.

It, however, diluted the representation of the professional bodies in the composition of the respective Disciplinary Committees.

So far, these professional bodies could only act against their members and not against the firms they represented. The new Bill — The Chartered Accountants, the Cost and Works Accountants and the Company Secretaries ( Amendment) Bill 2021 — introduced in the Lok Sabha by Finance Minister Nirmala Sitharaman on Friday requires every firm to get itself registered with the Institutes concerned.

The Councils of the Institutes will have to maintain a register of firms with the details of pendency of any actionable information or complaint or imposition of penalty against them. Also, the Councils are to be empowered to remove a firm from the Register of Firms if it has been debarred from undertaking any activity or activities relating to the profession of a chartered accountant in practice under any law or by any competent court.

For speedy disposal of disciplinary cases, the Bill specifies a time limit of 270 days.

Significant change

One of the significant changes is revamping the composition of the Disciplinary Committee and the Board of Discipline — a move seen by experts as a blow to the professional institutes as it takes away their powers to guide the outcomes in disciplinary mechanism.

Per the Bill, the Presiding Officer of the Disciplinary Committee would be a non-member of the Institute, which would mean that the Presidents of these bodies can no longer be the Presiding officer.

From the current situation where the five-member disciplinary committee includes three Institute nominees, including the President, and two government nominees, the Bill moots a shift to two Institute members and three non-members including the Presiding Officer appointed by the government.

The blow has, however, been softened by allowing the selection of the Presiding Officer from a panel recommended by the Council of the Institutes.

What ICAI says

Reacting to the provisions of the Bill, the Institute of Chartered Accountants of India (ICAI) President, Nihar Jambusaria, told BusinessLine that the government had, by and large, considered their recommendations. “The amendment Bill will further make the functioning of the ICAI more cohesive and result in strengthening the corporate governance and quality of preparation and reporting of key statutory documents,” he added.

Empowering the CA Institute to take action against the erring firms, a long-standing demand of the ICAI, is a progressive provision, he said.

On the disciplinary committee revamp, Jambusaria, however, admitted that this was not the best outcome for the CA Institute and added that the ICAI has already 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.

“We would prefer the current composition of 3+2 (three Institute members and two government nominees) to continue instead of the proposed 2+3 formula (two Institute nominees and three non-Institute members). Even if this is not acceptable, it would be better if government does a rethink on the presiding officer being a non-member of the institute. The Presiding Officer has to be a member of the institute and a chartered accountant for the disciplinary mechanism to work efficiently,” he added.