Parliament passes CA Amendment Bill. What exactly is it?
The 'Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Bill, 2021', also known as the 'CA, CWA and CS Bill 2021' was passed in the Rajya Sabha by voice votes on April 5, 2022, after the Lok Sabha passed it on March 30, 2022. The Bill was passed to amend the existing Acts that regulate Chartered Accountants, Cost Accountants and Company Secretaries. But why was it brought in the first place and why is it relevant? Also, how has the community taken it?
Here is the entire story.
WHY IS THE BILL BEING INTRODUCED?
India has seen a rise in corporate scams over the years. The impact of scandals like Satyam, ILFS, and Punjab National Bank have not been forgotten yet and cases against them are still moving towards completion. This has created a dent in the trust factor and the ability of the public to rely on the corporate sector entirely.
The government has passed legislations to create and regulate professions like CA, CS and CMA, to ensure that the corporate sector runs well. Presently, the below Acts govern these professions:
- The Chartered Accountants Act, 1949
- The Cost and Works Accountants Act, 1959 and
- The Company Secretaries Act, 1980.
These acts basically talk about the duties, responsibilities, standards and ways of operation, which the professionals are expected to follow. Basically, it encompasses how these professionals will engage in everyday work situations.
For perspective, these Acts, along with the Companies Act, 2013:
- Require companies to appoint CAs, CMAs and CSes (as per certain conditions),
- Provides guidelines to report frauds and timely non-compliances done by the company
- Provides the mechanism for taking disciplinary actions against the members of the Institutes who are engaged in misconduct.
Now, these institutes are broadly ''self-regulatory'' in nature and its affairs are managed by their respective Councils. Councils constitute of elected and government-nominated members. So, say there is a complaint against a CA for misconduct. Now, the disciplinary proceedings will be completely handled by the ICAI itself. The proceedings between the CA in question and the elected and nominated members will begin and once the committees of the Institute decide on the matter, the matter is closed there and then.
But since corporate scandals have risen in seriousness and frequency, the government feels that the Institutes have been showing laxity in their approach and have been taking their own sweet time to take appropriate action against the perpetrators.
This has led the government to desire for better mechanisms to deal with cases of misconduct in these three professions (CA, CS and CMA) in a bid to prevent corporate scams.
In 2018, the government set up the National Financial Reporting Authority (NFRA) as India’s first independent regulator of accounting and audit. This was a step to reduce the historical 'self-regulation' process that the CA profession was used to, and effectively reduced the ICAI to an examination board.
Now with this new CA, CWA and CS (Amendment Bill), 2021 , the government wants to strengthen the accountability of the practitioners and firms by making disciplinary mechanisms more independent, declaring pending complaints against firms, and increasing penalties.
WHAT DOES THE BILL TALK ABOUT?
The Bill mainly focuses on a few main points:
- The Composition of the Board of Discipline (BD) and the Disciplinary Commitee (DC)
- The Constitution of a Coordination Committee
- The Liability of firms for the misconduct of a partner
- The Timeline to complete disciplinary proceedings
- Role of the President and the Secretary
- Registration with the Institute
- Term of Council Member in the committee
- Increasing competition (IIAs)
EIGHT THINGS YOU HAVE TO KNOW:
1. When it comes to the composition of the Board of Discipline and the Disciplinary Committee, the Bill provides for more 'external' representation on both committees. First, the government wants the committee to be headed by a non-CA nominee. Second, it wants to increase the number of non-CA nominees so that they can exceed the number of CAs in the committee.
For eg: say there are 5 members in a committee. The bill will now allow committees to comprise 3 non-CA, government nominees; and 2 CAs. The committee will also be headed by a non-CA, government-nominated head of the committee.
The CA community resists this point. Here's why:
Auditors are responsible to ensure that the financial statements are 'true and fair' and in case of professional misconduct, the disagreements may arise over perception of fairness. Since financial statements are technical in nature and CAs are responsible to sign the same, a non-CA will never be able to have professional judgment over what is fair and not fair. Also, she/he will never have accountability since the committee's decision will be a group decision.
It is like asking a CA to make a judgment on a surgical process done by two doctors who have different approaches and are fighting about what is the right way forward. Though this CA might have a general idea, she/he may really not have a technical understanding or experience to make a judgment and decide.
Also since CAs often have to make a judgment in materiality, perspectives may differ and might complicate the matters. Letting a non-CA decide if a CA is guilty or not can be really unfair and inappropriate.
The government has mentioned that the nominees will be picked from a panel of members suggested by the Institutes. And since this practice is in line with global best practices, the same shall exist.
2. The firms will now have to register with the Institutes, and the Councils must maintain a register of firms containing details including pendency of any actionable complaint or imposition of penalty.
There is another point of resistance here for the community: Disclosing pending complaints before they are found guilty may adversely impact the reputation of firms and professionals. Also, the Bill does not prescribe any process to withdraw a complaint, which should be incorporated.
Also, it is NOT a norm among other professions to disclose pending complaints since they could be subjective. For eg: The Indian Medical Register contains details of doctors who have been blacklisted along with dates of suspension and revocation of suspension (if applicable). It does not contain details of pending complaints against doctors.
3. The Bill creates a Coordination Committee, which will be headed by the Secretary of the Ministry of Corporate Affairs (MCA). The Committee will have representation from the three Institutes formed under the Acts. The ICAI had concerns over this as it felt that this would hamper decision making.
But the Rajya Sabha has passed the Bill which includes a Coordination Committee that will now exist between the three institutes.
4. In cases of professional or other misconduct, the Disciplinary Committees were previously allowed to reprimand, or remove the members from the Institute, or impose a fine of up to Rs 5 lakh. The Bill has increased the maximum amount of fine to Rs 10 lakh.
5. If a partner or owner of a firm is repeatedly found guilty of misconduct during the last five years, disciplinary action can NOW directly be taken against the FIRM. This is a new update because previously the Institutes could only act against members but never against the firms. The firms can now be suspended or permanently removed from the Registers.
Also, the Disciplinary Committee can now:
(i) prohibit the firm from undertaking activities related to the profession of chartered account, cost accountant, or company secretary, as the case may be, for up to two years, or
(ii) impose a fine of up to Rs 50 lakh.
6. Earlier, a member of the CA committe could enjoy a term of 3 years and could be re-elected twice, thus enabling them to enjoy a total 9-year term. Now, the Bill has reduced this term from 9 years to 8 years. Thus, a member of the CA Committee can enjoy two terms of 4 years each.
ICAI has been demanding to increase the term of the Council for a long time...The provision in CA Act for ICAI is being aligned with the other two Institutes.- Smt @nsitharaman on Chartered Accountants, Cost and Works Accountants & Company Secretaries (Amend.) Bill, 2021 in LS. pic.twitter.com/dB6g0tzgNf
— NSitharamanOffice (@nsitharamanoffc) March 30, 2022
7. There has also been a suggestion to set up a string of accounting institutes, just like the IITs. But it has not been implemented as of yet.
8. The Bill has introduced proposals for specific timelines for disposal of disciplinary complaints to wind up cases within a time period of 1 year. A timeline of 90 days and 180 days is proposed to dispose disciplinary cases.
HOW DOES THE COMMUNITY FEEL ABOUT THIS BILL?
- THE CA FRATERNITY
CA Durgesh Singh is a Renowned Direct Tax professor, an Author, an Educationist, and has worked as a tax professional in EY. He exclusively tells DailyO about how the government has been proactive in making changes since 2017.
'If you remember on the occasion of the Chartered Accountants Day on July 1, 2017, PM Narendra Modi had shown mirror to the CA community for its lack of quality and integrity. It was a serious indictment of the ICAI’s self-regulation.'' When the ILFS scam came to light in Jul-Sep 2018, the NFRA was promptly set up in Oct 2018.
Since then, the government has consistently brought about many administrative reforms such as ''faceless tax assessment, rising threshold for tax audit, and abolition of GST audit''.
As for the Bill, he shares: ''The Parliamentary Committee’s suggestion to set up a string of Indian Institutes of Accounting (IIAs) on the lines of IITs and IIMs is innovative. These IIAs will offer a five-year full-time degrees in accounting, auditing and related areas. At one level, they will end the ICAI’s statutory monopoly over certification while at another level, they can greatly enhance the quality of education with a wholesome curriculum and can make the accounting community more inclusive and socially diverse.''
He feels that more competition would result in better quality and higher standards of conduct as the ICAI, the IIM's & the IIT's have to compete for the same talent pool.
- THE CS FRATERNITY
CS Jigar Shah is the Founder Partner at JMJA and Associates LLP. Besides being a Public Speaker, he is a certified CSR Professional and a Peer Reviewer with ICSI. He agrees that firms have historically escaped unscathed while only the partners were held responsible and penalized for their fraudulent actions. Thus, the restructuring of the Disciplinary Committee and action against firms is a very critical development. He also believes that this amendment is the beginning of a long-pending process of bringing all the three Institutes at par in terms of process, structure, and much more.
- THE CMA FRATERNITY
CMA Navneet Kumar Jain is a practicing Cost and Management Accountant, an Insolvency Professional, and has worked as a Consultant with the World Bank and WHO. He too agrees that the disciplinary mechanisms needed some changes and the idea of having a Coordination Committee is a welcome move. Though he does feel that the renaming of the CMA Institute to ICMAI, the Introduction of IIAs and e-voting must be brought in immediately.
CMA (Dr.) Ashish P Thatte is a practicing Cost and Management Accountant, a Partner at Joshi Apte and Associates and a Council Member. Ashish shared that though the prominence to non CMA's is a bit worrisome, the community is confident that the panel and the members will be ''judicious minded, if not technical''. He also resonates with fellow CMA's about the need to change the Institute's name from ''The Institute Cost Accountants of India'' to ''The Institute of Cost and Management Accountants of India''. He believes that this move is long overdue and will enable CMA's to practice Indian Management Ethos all over the world.
Ashish believes that since the Coordination Committee has a new huge responsibility, they need to be formalized over time.
The Bill allows a Quality Review Board (QRB) to file Disciplinary cases against firms. Ashish feels that the QRB should have been given a different process to resolve their observed irregularities instead of having the power to file cases. This could lead to chaos and less motivatation to implement Quality Review Board's suggestions wholeheartedly.
He also adds that the government could have added more flexibility in the proceeding timelines. He fears that the mentioned timelines can fall flat, just like it did in the case of IBC.
What do you think about this new bill?