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ICAI unhappy with relaxation of audit norms

The first impression that come to mind when you read this statement

“Almost 35-40% of CA firms, especially the smaller ones, will be hit by the RBI directive,” said the ICAI president Sunil H Talati

Hey... This must be some Trade Union Leader.

Then you further read on

“It leaves the banking system open to malpractices and frauds. This is a dangerous situation,” Talati said. He ruled the RBI did not even consult the institute, which regulates the audit function in India. While the ICAI has already written to the banking regulator about its arbitrary decision and its adverse fallout on the banking industry, he said the matter was also being discussed at the institute’s ongoing central council meeting.

Well, Mr Tahati, the business has to decide how much reassurances are required on internal controls. At the end of the day, the banks auditors have to report on true and fair view of final accounts.

What surprises to me, in India, the Accounting has been controlled by ICAI. Just like monopoly that leaves public little scope to choose.

For e.g. services provided by cost accountant or company secretary can also be provided by Chartered Accountant firms. This provides a choice for the companies to avail the services from best professional firms. However when it comes to financial accountancy, the companies are left with no choice but to avail services of members of ICAI.

It would be worth considering, how is the accounting/auditing profession monitored in developed countries.

United Kingdom

Companies Act 1989: Appointment of Company Auditor

25.—(1) A person is eligible for appointment as a company auditor only if he—

(a) is a member of a recognised supervisory body, and

(b) is eligible for the appointment under the rules of that body.

(2) An individual or a firm may be appointed a company auditor.

There are 5 Accounting bodies who are recognised to audit the accounts of the companies.

Similarly Australia has 3 bodies, Canada 2 bodies. This acts as a checks and balance in the profession. Moreover the Accounting & Auditing Standard Boards are independent of Accounting bodies.

In India, the accounting profession should be liberalised. Currently the accounting and auditing standards are issued by ICAI. The GOI has delegated all the work in this area to ICAI. As you can see that ICAI has shown trade union tendencies protecting the interests of its practising firms rather than user of its services i.e. the general public.

I am yet to find a website National Advisory Committee on Accounting Standards and role that it plays for what it stands for.

India needs a couple accounting bodies that trains it members through public accounting or employment route. Further National Advisory Committee on Accounting Standards should have the full authority to frame accounting and audit standards instead of ICAI. None of the accounting bodies should be able to issue accounting standards... Logically speaking you cannot audit your own accounts.

Company Secretary: Pursuant to Section 383 A of the Company Act, 1956, companies having a paid-up share capital of Rs. 50 lakhs or more are statutorily required to appoint a while-time company secretary. Membership of the Institute is the only prescribed qualification, which a person must possess for appointment as company secretary in such a company.

This is a restrictive practise. Member of other accounting bodies or law should also be eligible to hold the position of company secretary.

Last but not the least, what CMD of UBI has to say about relaxation of audit norms:

The relaxation has, however, been welcomed by bankers, who said it would lead to faster finalisation of accounts and help in controlling costs. “It is a welcome step and will help banks finalise their accounts within a reasonable time-frame,” United Bank of India CMD P K Gupta said.

He added that it would increase the efficiency of the banking system.

At the end of the day, it is the better industry practices and controls that should emphasised on rather than audits.

Regards,

Santosh Puthran
AICWA


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