ICAI gets tough, cracks the whip more often now

CHENNAI: With its regulatory powers coming under intense scrutiny, the Institute of Chartered Accountants of India appears to have turned active in disciplining its members.
Between April ’01 and August ’02, the disciplinary committee had found 64 CAs guilty under Section 21 of the Chartered Accountants Act, against two members found guilty in ’00-01.
ICAI institute follows a two-tier regulatory mechanism (council and a disciplinary committee). First, the council considers complaints received against its members and forms prima-facie opinion on whether the case should be referred to the disciplinary committee.
In the second level, the disciplinary committee conducts an enquiry and decides whether the member is guilty or not.
The committee found guilty 44 CAs under the first schedule of Section 21, 15 under the second schedule and five under both the schedules, during the 17 month period (includes cases referred prior to the reporting period). Also, the council considered 126 reports of the disciplinary committee, as against three in ’00-01.
The first schedule focuses on the conduct of a CAs, ensuring his professional independence and integrity. Soliciting clients for professional work, charging fee based on percentage of profit are deemed as misconduct.
The second schedule, requiring an action by a high court, deals with failure by a CA to disclose substantial interest in his report while expressing his opinion on the financial statements, in which he or his firm or a partner of his firm has substantial interest; failure to disclose a material fact known to him; failure to report a material misstatement known to him; gross negligence in the conduct of professional duties; failure to obtain sufficient information; failure to invite attention to any material departure from the generally accepted procedure of audit.
Denying that the new found activism has anything to do with developments outside the institute, R Bupathy, vice-president, ICAI, told ET, "During last year, the disciplinary committee met frequently and went ahead with its hearings with minimum required strength. Also, the committee refused to accept repeated adjournments and delivered its verdict with the available papers." Mr Bupathy, who will take over as president from April ’02, is part of the five-member disciplinary committee.
He said that if the government accepts the recommendation of ICAI to set-up regional benches, the council would be able to dispose of the disciplinary cases within a reasonable time span. Following the collapse of Enron in the US and scams in the domestic financial sector, the role of auditors had come under intense scrutiny and debate. In India, however, the law ministry had clarified that it did not intend to amend the CA Act.
In March this year, when a senior ICAI official was asked about the low number of cases being considered by the disciplinary committee, said: "In most cases, it has been found that the petitioner could not provide adequate evidence. Also, over a period of time, they lose interest and do not pursue the case."
About the low number of professionals being found guilty, he attributed it to the lengthy legal process and lack of proper evidence as the reasons.
To compare how the regulatory mechanism works elsewhere, the professional standards office of The Institute of Chartered Accountants in England assesses all the complaints received, around 2,000 every year, and takes up 35 per cent of complaints for investigation.
And, 4 per cent of all complaints end in reprimand or severe reprimand. Another interesting fact is that 25 per cent of the cases are resolved through conciliation.