Sucheta Dalal :Drawing The Lakshman Rekha (5 Jan 2003)
Sucheta Dalal

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Drawing The Lakshman Rekha (5 Jan 2003)  

A bill to amend The Chartered Accountants Act, 1949 introduced in the Rajya Sabha last December, by finance minister Jaswant Singh has created another furore in the accounting world. The Institute of Chartered Accountants of India (ICAI), which itself has been in the eye of a regretful storm for most of last year, has turned righteously indignant. ICAI President R Bupathy’s statements appear to make common cause with the Indian Institute of Management, which is battling government interference and an attempt to curb its autonomy.

Mr Bupathy told the media that: “The government has become more regressive in its outlook, imposing even more restrictions on the Institute when India itself is moving towards a more liberalised environment”. He points out that ICAI was not consulted on many of the amendments, creating potential problems of implementation. On the issue of the government’s intent to harmonise the Acts governing the ICAI, the Institute of Company Secretary of India (ICSI) and the Institute of Cost and the Work Accountants (ICWAI), Mr Bupathy says, “it seems that the ICAI is being punished for the follies of its sister Institutes”.

But ICAI is not on the same wicket at IIM-Ahmedabad (despite the leak of CAT papers). And it is not significantly different from ICSI and ICWAI, despite having greater responsibility and power.

First, the ICAI and its President have both been embroiled in serious controversies last year. There have been allegations about the conflict of interest involved in the President’s connection with a training institute for chartered accountants in Chennai. And there has been much outrage over foreign travel, unsupported by proper bills and wastage of benevolent funds. Some of these charges have been made by a government nominee on ICAI’s council. Yet, they were not properly examined or clarified by setting up an independent investigation. Consequently, its protestations do not find many sympathisers today.

Second, the profession has been deeply divided on the issue of foreign accountants. A powerful Chennai-based faction led by swadeshi ideologue S Gurumurthy has been fighting against foreign accounting firms operating here through surrogate Indian entities. But even those who don’t espouse the ‘swadeshi’ line and have ‘arrangements’ with foreign firms are demanding reciprocity and recognition of Indian accountants overseas. This issue too is smouldering without resolution.

A third issue is the long-standing allegation that ICAI has not been able to discipline its members adequately. As the statement of objects and reasons for the amendment bill points out, the Joint Parliamentary Committee investigating Scam 2000 had commented adversely “on the slow disciplinary procedure for the erring members of the Institute”. CAs signing the accounts of brokers and financial firms involved in the 1992 scam and all the later ones have also got away unscathed. Interestingly, the Naresh Chandra committee, on which the ICAI had representation, has also been critical about its functioning; especially its ability to discipline errant members.

But that did not bother ICAI, because the committee rejected the proposal to set up a new public oversight board, even while it wanted ICAI to “show more determination and speed — and so prove that it is an efficient body that can be always entrusted to provide transparent and expeditious auditing oversight”.

The problem arose when the government accepted Naresh Chandra’s recommendation to set up Independent Quality Review Boards (QRBs) for each of the three institutions (ICAI, ICSI and ICWAI), but kept for itself the power to decide their composition. The Naresh Chandra committee had recommended QRB to be formulated by ICAI, but the bill places the onus on the government to do so. It also does not require to consult the ICAI in choosing the chairman of QRB. 

The government has not only sought to increase its representation on ICAI’s governing council, but the main mischief, in terms of disempowering ICAI lies in the amended section 29 A of the Act.

This says that the central government, simply by issuing a notification, can make rules regarding the election and nomination of council members, terms of service of presiding officers and members of the tribunal and other officials. It can also decide their remuneration and the allowances that are paid to them. Government babus will also decided the manner of approval for foreign travel of the president, vice-president and members of the council and its committees; and the procedures adopted by the disciplinary committee for its functioning.

It can even “give to the Council such general or special directions as it thinks fit” or to dissolve the council if it is seen to have “persistently” failed to follow such directions. Such wide-ranging powers are draconian in their implication. They give the DCA sweeping powers without commensurate responsibility and end up making the medicine worse than the disease. As one member of the profession colourfully says — “if you have a headache, take an aspirin, don’t cut off your head”.

While fully supporting finance minister Jaswant Singh’s intent in arrogating more powers to force the ICAI to act decisively, the minister would do well to look at the DCA’s functioning first. Unless the DCA too is made more accountable and autonomous (like the Securities and Exchange Board of India), it would be ridiculous to hand over powers to a set of babus, whose own track-record is far worse than that of the ICAI.

Through all the controversies that surrounded the ICAI last year, the DCA distinguished itself by silence and inaction. Surely, it did not require a statutory amendment to exert its already considerable influence on the Institute? The accounting profession certainly does not have the clout of India Inc, which forced the withdrawal of The Companies Act Amendment Bill, 2003. But it could still turn lucky if the government switches to election mode immediately. The Amendment Bill introduced in the Rajya Sabha may then remain in limbo and could be later withdrawn and modified.

If accountants want to preserve their freedom and independence, it is time their leaders took charge and found a way to drastically restructure ICAI’s disciplinary procedures, introduce a code of conduct and present a united face capable of self-regulation. Only then can they legitimately make a case for government to draw a lakshman rekha between its powers and those of the ICAI.

-- Sucheta Dalal