ICAI to seek power to punish audit firms with govt nod
August, 25th 2010
The Institute of Chartered Accountants of India (ICAI) is likely to ask for powers to penalise errant audit firms, but only with prior approval from the government.
The ICAI Council, the apex decision-making body that met last week, was divided on the issue of the regulatory agency for auditors getting powers to penalise firms as well. Instead, it agreed that the powers be used only in special circumstances, said members present in the meeting. A panel constituted by the Council has been tasked with defining what can trigger ICAI intervention against a firm. If we find that auditors from one firm are repeatedly engaged in offences or if the act of an auditor is really grave, ICAI should have powers to act against a firm, a member of the Council said.
Following the Satyam accounting fraud, ICAI had sought powers to cancel the registration of audit firms as well. At present, its jurisdiction covers individual auditors only. The move was also being seen as a step towards regulating foreign firms, most of which are operating in India through tie-ups with local firms.
Armed with the Councils approval, ICAI would approach the Ministry of Corporate Affairs to amend the Chartered Accountants Act, the institutes president Amarjit Chopra said. It (regulation) will be done on a case-to-case basis after getting approvals from the ministry on each occasion, Chopra added.
POWER WITH A RIDER * ICAI is likely to seek powers to penalise errant audit firms, but not without prior approval from the government * The ICAI Council was divided on the issue of the regulatory agency for auditors getting powers to penalise firms
* A panel constituted by the Council has been tasked with defining what can trigger ICAI intervention against a firm * At present, ICAIs jurisdiction covers individual auditors only * Armed with the Councils approval, ICAI would approach the Ministry of Corporate Affairs to amend the Chartered Accountants Act.
Another ICAI Council member said that amendments to Schedule I and Scheduled II of the Act had been proposed. Once Parliament approves the changes, ICAI will have powers to send show cause notices, levy penalties and in cases of grave offences, cancel licences.
The ICAI move comes days after the Bombay High Court had ruled on August 13 that the Securities and Exchange Board of India (Sebi) could proceed with its enquiry against audit firm Price Waterhouse for its alleged role in the Satyam scam.
The court had observed that Sebi had the power to act in the interest of the shareholders of listed companies. However, it noted that actions against the professionals (chartered accountant in this case) could be taken only by the body that regulates that profession. The courts observation had triggered a debate as to whether Sebi could debar Price Waterhouse from working with listed companies, if proved guilty.
Currently, the disciplinary committee of ICAI holds individual chartered accountants responsible for any malpractices or discrepancy that happens during the audit work. ICAI has the powers to suspend the registration of such persons, if found guilty. However, the institute has no such powers to take similar actions against the audit firm.