- GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
CA, CWA and CS (Amendment Bill), 2021
Context: The Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Bill, 2021, was passed by the Lok Sabha that amends the
- Chartered Accountants Act, 1949,
- Cost and Works Accountants Act, 1959
- Company Secretaries Act, 1980
- The above three Acts provide for setting up of the Institute of Chartered Accountants of India, the Institute of Cost Accountants of India, and the Institute of Company Secretaries of India.
- The affairs of the Institutes are managed by their respective Councils. The Councils are comprised of elected and nominated members.
- These bodies approve academic courses, conduct examinations of candidates, prescribe qualifications for entry of names in the register of members, and regulate the standards of professional qualifications of their members.
- The Acts also provide the mechanism for taking disciplinary actions against the members of the Institutes who are engaged in professional or other misconduct.
- This mechanism is broadly self-regulatory in nature wherein the members of the Institutes take part in the disciplinary proceedings along with certain external members nominated by the central government.
- In recent years, India has seen several frauds and scandals, which have brought into focus the role and effectiveness of the statutory audit by independent auditors.
- In the backdrop of a major fraud at Punjab National Bank in 2018, the central government setup the National Financial Reporting Authority (NFRA) under the Companies Act, 2013.
- NFRA is empowered to investigate matters of professional or other misconduct by chartered accountants. This was a move away from self-regulation of the profession of chartered accountancy as was followed so far.
What is the objective of the new bill proposed?
- 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.
Key Changes Proposed in the Bill are:
- ICAI’s disciplinary committee and board of discipline will be chaired by non-chartered accountants (CA), and its elected council members will no longer be in a majority in them.
- It also provides for time-bound disposal of cases against members of the
- Governance and administration:
- The term of the ICAI’s Council will be raised from three to four years
- The maximum number of consecutive terms for its elected members will be reduced to two from the current three;
- ICAI’s Secretary will replace the ICAI’s president as its chief executive and perform the functions to be specified;
- ICAI will appoint its auditor from the Comptroller and Auditor-General of India’s panel of CA firms;
- Coordination Committee
- The Bill provides for setting up a Coordination Committee headed by the Secretary of the Ministry of Corporate Affairs.
- Its functions will include: (i) quality improvement of academics, (ii) coordinating and collaborating among the professions, and (iii) making recommendations on regulatory policies for the professions.
- Registration of Firms: Firms must now register with the Institutes. The Councils must maintain a register of firms containing details including pendency of any actionable complaint or imposition of penalty.
- Penalties: The Bill increases certain fines under the three Acts. If a partner or owner of a firm is repeatedly found guilty of misconduct during last five years, disciplinary action can be taken against the firm.
Significance of the changes brought in by the bill
- It will strengthen the ICAI’s accountability, governance, and administration.
- The Parliamentary Standing Committee on Finance has endorsed these changes and has further recommended an end to the ICAI’s monopoly in certification.
- There have been persistent complaints that the ICAI is lax in acting against errant members. The proposed changes will enhance speedy disposal of complaints given the increased government’s role in disciplinary committee of ICAI
Criticisms of the bill
- The proposed changes in the composition of the ICAI’s disciplinary arms will further limit its role. As a result, the ICAI will be effectively reduced to an examination board.
- The Bill aims at bringing discipline to these professions but the disciplinary authority will be headed by a non-Chartered Accountant who may lack domain knowledge.
- For Bar Council, the chairman is a lawyer. For Medical Council, chairman is a doctor, but for ICAI committee, chairman will be a non-CA.
- The Statement of Objects and Reasons of the Bill states that it seeks to address the conflict of interest between the administrative and disciplinary arms of the Institutes. To achieve this, the Bill proposes to change the composition of the two disciplinary entities to allow for more external representation. However, these external members will be selected from a panel of persons prepared by the three Councils.
- As the three Institutes also have committees for coordinating among themselves, it is unclear as to why there is a need to setup another Coordination Council as proposed under the Bill.
- The Parliamentary Committee’s suggestion to set up a string of Indian Institutes of Accounting (IIAs) on the lines of IIT & IIM is innovative.
- The IIAs will offer a five-year full-time and broad-based degree in accounting, auditing and related areas and their graduates.
- At one level, they will end the ICAI’s statutory monopoly over certification. More competition will result in better quality and higher standards of conduct.
Connecting the dots:
- National Financial Regulatory Authority (NFRA)
- IL & FS Crisis