The Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Act, 2022 got the President’s assent on April 18 by amending the three different Acts — the Chartered Accountants Act, 1949, the Cost and Works Accountants Act, 1959 and the Company Secretaries Act, 1980 which regulate the functioning of chartered accountants, cost accountants and company secretaries respectively.

The introduction of this Act coincides with India’s growing geopolitical heft. The volume of financial transactions has also increased manifold compared to the last 30 years.

The structural changes in the corporate environment have not been accompanied by necessary changes in the regulatory and professional guidelines governing the three professional bodies. The recent corporate scams have also turned the spotlight on the functioning of these three professional bodies.

Against this backdrop, the present Act was introduced in order to develop indigenous professional institutions which have world-class standards in the accounting and audit areas.

The Act’s significance

The present Act aims at raising the standard of accounting and auditing practice in India by strictly enforcing the penalties and disciplinary actions against the wrongdoing professionals/firms among these three bodies (Chartered Accountants, Cost Accountants and Company Secretaries) by increasing the transparency and quality related to the disciplinary matters.

Firstly, regarding the disciplinary matters, the current Act brings in a non-member of these three bodies, that is, appointing a person who is not a member of the professional bodies as the presiding officer of the board of discipline as well as the disciplinary committee of the respective institutes to oversee the disciplinary process against any defaulting firm or an individual. This will address the conflict of interest between the administrative body and the disciplinary body of these institutes.

In addition to these changes, the disciplinary process for the violation of the code of conduct has been made time-bound with heavy penalties.

Secondly, about the responsibility, the present Act has made secretaries of the respective council as the chief executive and the presidents as the heads of the councils who will be held responsible for the implementation of the councils’ decisions. The present amendment has brought uniformity to the functioning of the three institutes.

Thirdly, the present amendment has brought in a new concept of a coordination committee wherein the Secretary of the Ministry of Corporate Affairs will be the head while earlier the three institutes had their own separate coordination committees. The present Act is inclusive as the President, Vice-President and Secretary of these three institutes are also a part of the coordination committee thereby paving the way for raising the auditing, accounting and compliance standards to global standards. The coordination committee will work on improving the quality of the academics, coordination, regulatory policies, and collaboration among the three professionals bodies.

Finally, related to the registration of the firms, the present Act specifies that the firms must register with respective institutes and the institutes should maintain a record of the firms with details relating to complaints and penalties against each firm.

In addition to these amendments, the earlier three Acts will continue to govern the functioning of the three professional bodies and the present Act resolves and governs issues only pertaining to bringing more transparency to the disciplinary processes and hence does not affect the autonomy of these institutes.

The Act has been introduced at the right time when the government is keen on forging a favourable investment climate for domestic as well as foreign investors. This Act will boost India’s global image by reiterating a strong investor protection environment and increasing the quality of corporate governance.

Saravanan is a professor of finance & accounting and Williams is a research staff, IIM Tiruchirappalli