`Salaried partners can audit, sign annual accounts of cos'
July, 25th 2006
CA firms are based on the Indian Partnership Act, which allows salaried partners, who may not hold equity in the company.
Are partners drawing a fixed remuneration employees? A shareholder of Mangalam Timber thinks so. But a senior office-bearer of the Institute of Chartered Accountants of India (ICAI) thinks otherwise. At the centre of the controversy is R.S. Lodha of the audit firm of Lodha & Co who is locked in a legal dispute with the Birlas over the will of Ms Priyamvada Birla, wife of M.P. Birla.
In a move against Lodha & Co, a minority shareholder of Mangalam Timber Products Ltd, a B.K. Birla firm, alleged that a salaried employee of the CA firm had audited the accounts, which is against specified industry guidelines.
Addressing a press conference, Mr P.K. Khaitan of Khaitan & Co, the legal firm, briefing the media on behalf of Mangalam Timber, said that summons had been issued against Mr R.S. Lodha, his two sons, Mr Aditya Vikram and Mr Harsh Vardhan, and Mr P.L. Vadera, the employee who signed the accounts as a partner.
According to Mr Khaitan, Institute of Chartered Accountants of India (ICAI) guidelines allow one partner of a CA firm to audit only 20 companies in a year. He said that based on the IT returns of Lodha & Co for 2002-03 it was found that it is a three-partner firm. So it can audit only 60 companies.
"But after checking several annual reports we have found that they have audited more than 120 companies," he alleged. He went on to add that at ICAI, Lodha & Co has stated that they have 14 partners.
"It is not true because the other partners are only drawing salaries and so, they are employees. And employees of a CA firm are not entitled to sign accounts. These partners are not getting a share of the company's profits," he said.
A senior office-bearer of ICAI, however, held a different view. According to him, CA firms are based on the Indian Partnership Act, which allows salaried partners, who may not hold equity in the company.
The official further clarified that these partners are entitled to audit and sign the annual accounts of companies.
A few months back, three city-based chartered accountants had brought similar allegations against Lodha & Co and moved it to ICAI. Responding to it, Lodha & Co filed a writ petition but it was quashed by the Calcutta High Court. The matter is currently being heard by ICAI.