What will be the implications of The Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Bill, 2021?
During the winter session of parliament, the government introduced ‘The Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Bill, 2021 to be in sync with the business environment, domestic and international, as well as to enhance the disciplinary process and expedite the resolution of misconduct cases in the audit and accounting business.
The proposed changes are deep and have long term implications. The Act itself has added a word called ‘Development’ (Chapter II; Amendment of Long Title and Preamble - the words ‘regulation and development’ is substituted in place of the word ‘regulation’) and this sets the tone for the rest of the paragraphs to follow.
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How the new legislation seeks to curb misconduct in the audit and accounting profession?
The key focus of the amendments has been applied to all the three professional institutes in India namely, The Institute of the Chartered Accountants of India, The Institute of the Cost & Works Accountants of India and The Institute of the Company Secretaries of India.
I present below some points which are interesting and will help in curb misconduct in audit and accounting:
1. Disciplinary Action:
The amendments relating to disciplinary action propose a wide bench and resource mechanism for hearing and adjudication of complaints raised on members. It is proposed that the Presiding Officer be appointed by the Central Government, who shall have disciplinary experience and knowledge of the profession. The amendments propose member and non-member composition in the Board of Discipline as well as the Disciplinary Committees. Such board and committee shall comprise members of the institute and central government appointees. The new organisational structure for disciplinary proceedings includes a director and the joint director. It seems to draw inspiration from the Government Directorates as well as regulators like IRDA/SEBI/DGCA etc.
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2. Complaints:
Complaints once registered cannot be withdrawn thus ensuring that no frivolous complaints can be made. The amendments propose welcome time bound closure of complaints. The complaints are categorised as actionable and non-actionable therefore ensuring speedy disposal.
3. Powers of Civil Court to Adjudicating Mechanism:
To give the necessary teeth, the adjudicating mechanism has been given the powers of a civil court and therefore civil code procedures apply. The penalties are significant and should deter wrongdoing.
4.Central Co-ordination Committee:
In line with the trend of holistic approach in governmental organisations in India and globally, a co-ordination committee of all the three institutes has been proposed akin a central head for the Defence Forces.
5.Separation of Powers Between Legislative and Executive
Similar to the corporate environment and structure in listed companies beginning with the Cadbury Committee recommendations in the United Kingdom, a separation of powers between the policy makers and the executive is proposed. The president of the Institute has been designated as the Chief Executive Authority (Section 12) while the Secretary is designated as Chief Executive Officer (Section 16).
While all of the above actions in general spell good intent and likely to be progressive, are there any clarifications that you would like to state?
Yes, there are a few clarifications that I would like to state here:
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1.Definition of Authority:
In Clause 12, the President of the Institute is named as Chief Executive Authority - CEA. In other places references are made to the authority. Does this make the President an appellate authority, if an aggrieved member is not satisfied with the decision of the Board of Discipline and or the Disciplinary Committee (DC)? Section 22A of the Parent Act has already defined ‘appellate authority’ and the wording of this amendment seem to be conflicting with Section 22 A of the CA Act. Is therefore the decision of the BoD and DC reviewable by the CEA? What happens when further appeal is needed by CEA? Does it go to the Supreme Court or the High Court?
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2.Sec 25 of the parent act:
It seeks to debar companies from accountancy. The definition of ‘accountancy’ is not clear. Have we confused between audit and accountancy? Perhaps the parent act meant to convey ‘audit and assurance’ services through the use of the word accountancy. Many companies, some of them MSME’s are engaged in providing accounting and book keeping services. A formal clarification on this will be in order.
