The Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Bill, 2021 reinforces rigour in the entire disciplinary process by entrusting it to non-members of the respective institutes. The CA, CWA and CS (Amendment Bill), 2021 seeks to strengthen the accountability of practitioners and firms by making the disciplinary mechanisms more independent, registering firms, and increasing penalties.

Looking at the recurring incidents of flaws in the conduct of these professionals, in some cases, they even tacitly collaborated with the management of companies in suppressing material facts leading to corporate frauds which escaped regulatory glare. These reforms are deemed necessary by the Parliamentary Standing Committee on Finance to end the monopoly over the accounting profession.

The Punjab National Bank fraud, IL&FS fiasco, failure of PMC Bank and the near crisis in YES Bank are some glaring instances of failure of the accounting professionals putting the entire financial system at risk.

Also instances of non-disclosure of material information to stakeholders have been plenty in the financial sector. It led to the RBI introducing asset quality review (AQR) in September 2015 to assess the real state of asset quality of banks that were well audited and even went through the scrutiny of audit committee of the boards.

These experiences defeat the very purpose of institutionalising statutory audits. Hence the urgency to reform and institutionalise disciplinary processes that are rigorous enough to protect the long-term sustainability of the corporate sector. The unbiased association of non-members in the disciplinary committee is expected to eliminate conflict of interest galvanising fear of getting debarred from practicing the profession.

The crux of change

Hitherto the heads of the disciplinary committees of these professional bodies were led by their own members. The amendment brings an outsider — non-members of the professional bodies to oversee the disciplinary process. The disciplinary processes are now made time bound with higher penalties for violation of code of conduct. It is intended to make the disciplinary process more stringent.

These three groups of professionals have broad spectrum of responsibilities and play an important role in risk management. Therefore, the integrity and ethical dimensions of this role make it more sensitive towards maintaining rigour in their conduct and discipline. It is more to do with the professional commitment towards execution of responsibility to ensure quality of governance moving beyond balance sheets and financial statements.

The distinct feature of their responsibilities is guided by self-regulation as missing gaps in the conduct does not get quickly reflected in the performance results of entities in near term. Unintentional or intentional suppression of facts, weaknesses in the audits, lacklustre approach towards standards of compliances, breach of discipline and any indifference in commitment can gradually turn the balance sheet toxic and it will be too late by the time the intangible missing dots catch the eyes of stakeholders. The numbers in the balance sheets talks quantity and not necessarily the quality or treatment, interpretation of regulations, inherent values of assets and liabilities.

Protecting credibility

All the three professional qualifications — CA, CWAI, and CS deserve respect and credibility for clearing the stringent examinations. But it becomes difficult for their professional bodies to keep a check on the conduct of independent professionals within the limited disciplinary ecosystem.

It is something very internal to individuals and difficult to impose with regulations.

In a growing economy, when the corporate sector tends to a build risk appetite beyond their capacities, the systemic controls coming through these professionals should be able to ensure stringent implementation of GRC to ensure sustainability of the organisations.

The very purpose of making audit of listed companies statutory under Companies Act - 2013 is to lend credence to the systemic controls for long-term sustainability of corporate sector and to promote assurance to the stakeholders that the financials reflect true and fair view. Any breach of this objective vitiates the confidence on the credibility of the accounting profession.

The way forward

When the whole business ecosystem is getting embroiled in Volatility, Uncertainty, Complexity and Ambiguity (VUCA), exacerbating risks, the entire business risks are getting redefined with the onset of technology led by AI/ML/DL adding nuances of improved business processes.

At the same time, global business relations are influenced by global integration of economies. In such a complex environment, the onetime qualification acquired with the mind set to clear the tough examinations may not be relevant in the years to come.

The skills of risk management and knowledge need to be fine-tuned in sync with global business dynamics. These professionals will have to interact with a new genre of CEOs and CROs. Risk can be tackled only if the three lines of defense – The line management, Risk managers and oversight team stay equally well committed to their disciplines integrated with high level of ethical standards.

In this context, while the current move to induce speed and fairness in enforcing discipline with involvement of outside professionals is right, the idea of setting up Indian Institutes of Accounting (IAA) should also be prioritised. These apex professional institutes akin to IIMs/IITs can eventually develop sturdy standards of accounting and disclosures among new community of professionals. At the same time, IAAs can work towards upgrading and sustaining the skills of existing professionals who have obtained qualifications years ago.

The divide in the knowledge levels of past and present generation of professionals has to be narrowed as far as possible with more frequent refresher programs/training/mentoring/continuous learning and development systems. The initiatives proposed now for the three sets of professionals is sure to add value in better implementing GRC framework and can bring similar awareness among other professional communities to create passion to learn and stay self-regulated upholding values of ethics and integrity in their conduct and discipline.

The writer is Adjunct Professor, Institute of Insurance and Risk Management – IIRM. Views expressed are personal