Char­tered ac­coun­tants in PM's line of fire

Black sheep can be found in any walk of life, but their few num­bers can hardly jus­tify con­demn­ing an en­tire group or pro­fes­sion

Gfiles - - GOVERNANCE -

IN the nearly hour long speech that Prime Min­is­ter Naren­dra Modi de­liv­ered on the ‘ CA day’, on July 1, 2017, which also hap­pened to be an­niver­sary day of the es­tab­lish­ment of the In­sti­tute of Char­tered Ac­coun­tants of In­dia (ICAI), it is said, with ut­most re­spect, that the PM has been un­duly harsh to­wards Char­tered Ac­coun­tants of In­dia (CAs) and their apex body, which, un­doubt­edly, is an im­por­tant pro­fes­sion and helps the gov­ern­ment and the econ­omy to pro­ceed suc­cess­fully in their on­ward jour­neys. When I am pen­ning these lines, I am not hold­ing any brief for the er­rant and un­couth CAs, who de­fame the pro­fes­sion by their mis­deeds. Black sheep can be found in any walk of life, but their few num­bers can hardly jus­tify con­demn­ing an en­tire group or pro­fes­sion. PM’s ob­ser­va­tions re­gard­ing CAs were: *CAs are the prime fa­cil­i­ta­tors of black money gen­er­a­tion; *They were ex­tremely busy dur­ing the de­mon­eti­sa­tion pe­riod. Some of them even can­celled their for­eign hol­i­day trips and worked round the clock to fa­cil­i­tate con­ver­sion of black money into white money. He ex­pressed won­der as to what ex­actly kept them busy? *He said rather in a threat­en­ing way that ev­i­dence against three lakh firms has been ob­tained through data min­ing and that one lakh com­pa­nies have been struck off the reg­is­ter of com­pa­nies. He won­dered as to who could fa­cil­i­tate such ac­tiv­i­ties and cer­ti­fied such com­pa­nies’ ac­counts? The PM spoke quite sternly about the apex body of the CAs – the ICAI - which has ex­ten­sive pow­ers, men­tion­ing that it has the power to con­duct CA ex­ams, cer­tify CA’s fit­ness to prac­tice their pro­fes­sion, to judge whether they had com­mit­ted any vi­o­la­tions and then pun­ish the guilty. Yet, only 25 CAs had been found guilty of mal­prac­tices in the past 11 years while 1,400 cases were pend­ing. He re­minded the ICAI, in a pointed way, that its power has been con­ferred by Par­lia­ment, which can take it away too – mean­ing, per­haps, that if it is not able to con­trol its mem­bers ef­fec­tively, Par­lia­ment may not hes­i­tate in tak­ing away the pow­ers con­ferred on the ICAI. No ex­cep­tion could be taken to what the PM has said about those CAs, who in­dulge in du­bi­ous func­tion­ing, but will the sit­u­a­tion im­prove by such broad pub­lic con­dem­na­tion? The prob­lem is more deep rooted and not con­fined to CAs alone. No doubt, some CAs might have acted ir­re­spon­si­bly in some sit­u­a­tions – may be in the con­text of de­mon­eti­sa­tion as well as stated by the PM – but such aber­ra­tions have been con­se­quent to avarice greed; lust for power and money and var­i­ous other evil ten­den­cies in hu­man be­ings. These have been hap­pen­ing in other coun­tries also. In USA too, the au­dit mech­a­nism proved to be in­ef­fec­tive. In the year 1930, an Amer­i­can au­dit firm, McKes­son & Robins Inc., was found in­volved in mas­sive de­cep­tion of fi­nan­cial state­ments. The Met­calf Re­port, 1976 (USA) ques­tioned the ob­jec­tiv­ity and per­ceived in­de­pen­dence of an au­di­tor, who is seen to be de­pen­dent on the com­pany for his con­tin­u­ance as an au­di­tor. So wide­spread were the evils of au­dit ma­nip­u­la­tions that sev­eral au­dit firms were found to have cer­ti­fied an­nual ac­counts, which showed non-ex­is­tent as­sets and grossly over­stated prof­its. Satyam’s in­stance in In­dia is also like this. Hu­man weak­nesses are uni­ver­sally found not only in the au­dit pro­fes­sion but in other pro­fes­sions also like that of ad­vo­cates, where ev­i­dences are con­cocted, wit­nesses tu­tored, false af­fi­davits and doc­u­ments filed and var­i­ous other mal­prac­tices, are in­dulged in. Bu­reau­cracy too is not im­mune from such evils. Re­ports in me­dia of­ten ap­pear about gov­ern­ment ser­vants and per­sons in pri­vate sec­tor in­dulging in ques­tion­able ac­tiv­i­ties. In such sit­u­a­tions, sin­gling out mere au­di­tors for pub­lic con­dem­na­tion seems harsh. De­spite black spots men­tioned, the au­dit pro­fes­sion has been pro­gress­ing

and grow­ing not only in In­dia but in other coun­tries. On their cer­ti­fi­ca­tion of an­nual ac­counts of com­pa­nies, in­vestors put their im­mense funds in the cor­po­rate sec­tor. They as­sist a num­ber of gov­ern­ment de­part­ments in car­ry­ing out their func­tions. For in­stance, un­der the I.T. Act, 1961, CAs are en­trusted the work of spe­cial au­dit u/s 142(2A) of the Act, where the AOs find the ac­counts of the tax­pay­ers com­plex be­cause of mul­ti­plic­ity of trans­ac­tions or be­cause of spe­cialised na­ture of busi­nesses, etc. They cer­tify the ac­counts of trusts and char­i­ta­ble in­sti­tu­tions for get­ting tax ex­emp­tions. Au­dit of ac­counts of cer­tain per­sons, en­gaged in busi­nesses or pro­fes­sions u/s 44AB is manda­tory in pre­scribed sit­u­a­tions. Au­di­tor’s test is nec­es­sary for tax ben­e­fits by way of ex­emp­tions and in­cen­tives; ad­mis­si­ble un­der Chap­ter VIA of the Act and var­ied other check­ups are to be done by au­di­tors. Dis­arm­ing them from such func­tions can ad­versely af­fect the work of var­i­ous de­part­ments of the Cen­tral and State Gov­ern­ments. How­ever, de­spite this, mal­prac­tice by some CAs is a mat­ter of grave con­cern and can­not be ig­nored. One mea­sure adopted in many coun­tries, in­clud­ing In­dia, has been to strengthen cor­po­rate gov­er­nance and for es­tab­lish­ment of au­dit com­mit­tees and manda­tory in­ter­nal au­dit and ap­point­ment of in­de­pen­dent di­rec­tors in the com­pa­nies listed in the SEBI. No in­de­pen­dent study, how­ever, seems to have been made on how this mech­a­nism has helped im­prove the func­tion­ing of CAs. So­lu­tion for such mal­adies can be found by fol­low­ing two pronged ap­proach namely [i] reg­u­la­tory and [b] re­for­ma­tory. Un­der the reg­u­la­tory ap­proach, laws and rules need to be en­acted to check un­sa­vory prac­tices in var­i­ous pro­fes­sions. On these lines, a good be­gin­ning has been made con­cern­ing med­i­cal pro­fes­sion by the is­sue of Es­sen­tial Com­modi­ties (Con­trol of Uneth­i­cal Prac­tices in Mar­ket­ing of Drugs) Or­der, 2017 to end in­sid­i­ous links be­tween phar­ma­ceu­ti­cal com­pa­nies and doc­tors. Sim­i­lar or­ders need to be is­sued con­cern­ing other pro­fes­sions.

FUR­THER, per­sons found guilty, need to be se­verely and ex­pe­di­tiously pun­ished. It is sad to find, as pointed out by the PM, that only 25 CAs have been pun­ished in the last 11 years. This is, pri­mafa­cie, un­ex­plain­able. The pun­ish­ment mech­a­nism, not only in ICAI but with other reg­u­la­tory bod­ies, needs to be made ef­fec­tive and strong. Time lim- its forfo dis­posal of dis­ci­plinary and oth other pro­ceed­ings for im­pos­ing p pun­ish­ments need to be fixed within which the pro­ceed­ings must be con­cluded. The pun­ish­ment, to be im­posed, must b be se­vere to work as a de­ter­rent for oth­ers. The en­tire ma­chin­ery in thi this re­gard will need a relook. As far as re­for­ma­tory ap­proach is con con­cerned, the so­lu­tion to the proble prob­lem lies in ad­her­ence to the prin­cip prin­ci­ples of ethics and spir­i­tu­al­ity, as­pect as­pects which need to be pop­u­larised with theth same zeal and en­thu­si­asm as ‘yoga’ in re­cent times. Do­ing so would grad­u­ally lead to self-dis­ci­pline, self­im­prove­ment and trans­for­ma­tion and in­ner as­cent by in­di­vid­ual ef­forts, re­sult­ing in pos­i­tive ori­en­ta­tion of thoughts, broad­en­ing of at­ti­tudes, cul­ti­va­tion of vir­tu­ous qual­i­ties and sin­cere adop­tion in con­duct. Thus, in course of time, a ten­dency would de­velop to shun un­holy prac­tices. Thus, spir­i­tu­al­ity is no less im­por­tant – rather needed in a larger mea­sure in the present day ma­te­ri­al­is­tic world – than any branch of sci­ence. Of course, the re­sults may take time to ma­te­ri­alise. Spir­i­tu­al­ity could be part of cur­ricu­lum for stud­ies in schools. Broader as­pects can be part of the train­ing pro­grammes of var­i­ous na­tional acad­e­mies for civil ser­vices and for var­i­ous lev­els, in­clud­ing that for ex­ec­u­tives and di­rec­tors in com­pa­nies. So­cial con­dem­na­tion of per­sons found in­dulging in such con­ducts, de­nial of ap­point­ments to per­sons found guilty of ques­tion­able prac­tices as di­rec­tors in cor­po­ra­tions and as elected rep­re­sen­ta­tive of peo­ple in var­i­ous leg­is­la­tures too can de­crease mal­prac­tices in var­i­ous seg­ments of so­ci­ety. Se­ri­ous thought needs to be given to such as­pects. The writer is for­mer Chair­man, CBDT

Time lim­its for dis­posal of dis­ci­plinary and other pro­ceed­ings for im­pos­ing pun­ish­ments need to be fixed within which the pro­ceed­ings must be con­cluded. The pun­ish­ment, to be im­posed, must be se­vere to work as a de­ter­rent for oth­ers

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