Who is to blame for the Indian government encroaching on ICAI's powers?

 #supriowrites #icai 

Who is to blame for the Indian government encroaching on ICAI's powers?

What has not Happened

I have written for long on the reasons and consequences of what has not happened for two decades due to The Institute of Chartered Accountants of India (ICAI) not having the power to punish an audit firm however big it is. For the unintiated, The Chartered Accountants Act, 1949 has not given this power to ICAI till date.

Why this most important requirement of ICAI has not happened in spite of the nation being looted in regularity by scamsters and fraudsters settled comfortably with the loot in some corner of this planet. 

Yes not even after the National Financial Reporting Authority (NFRA) formed in 2018 as our disciplinary regulator.

What is Happening Now

A Bill moved in Parliament to empower ICAI, ICMA and ICSI to take disciplinary action against erring firms. Something long overdue. I didn't expect this to happen. But it has.

It is a rude awakening for ICAI's rank and file.

ICAI is a statutory body set up by an Act of Parliament which enjoys a large amount of functional autonomy. 

In 2018, NFRA, having enhanced powers, was set up. And now, the bill seeks to overhaul the disciplinary mechanism of ICAI, as well as those for Company Secretaries and Cost Accountants - ICAI and ICMA.

The ICAI is understandably unhappy that its domain has been encroached upon. Once again, after NFRA. The bill puts a government appointee as the head of the Disciplinary Committee, the ultimate authority to punish members for violations. 

Our community says that only a Chartered Accountant can interpret accounting rules in a way to do justice to the role. However, the functioning of the Committee, headed by prominent members of ICAI leaves much to be desired.

Adjudications are inordinately delayed leaving room for much to happen. The final orders against the auditors of Satyam (PwC) came 5 years after the scandal broke out in 2009. The Satyam scam is the story of India's biggest corporate fraud. ICAI argued its hands were tied up because of judicial interventions.

If ICAI wants to blame someone for this sorry state of affairs it is only itself. Once considered to be the most formidable of financial regulators it lost its domination over the last two decades, most of all among its own members. 

It has not been able to make any progress in the two areas members still look up to it the most – protecting small and medium audit firms from the dominance of large MNC-networked firms, Deloitte, PwC, KPMG, EY and so on; and to punish firms that facilitated the biggest financial scams over the last two decades. The latest amendment helps with the latter, as it gives ICAI the powers to proceed against audit firms.

It may be argued that this coincides with a fall from grace for institutions across the board, ICAI’s troubles are different in that they are mostly unsolicited. Perhaps a bigger soul searching is called for.

To be concluded