Chartered accountants can become whistleblowers? ICAI council is
divided over code of ethics
MUMBAI: Chartered accountants, who are often blamed for helping
clients sidestep the law and masking the truth behind numbers, will
have a new code of ethics. After a marathon council meeting last week,
the statutory body that makes the rules for the profession decided to
overhaul the present code.
Amid spiralling incidents of corruption, allegations against senior
professionals and a clamour for a strong anti-corruption law, the
council debated whether CAs can become whistleblowers even as they
play their fiduciary role in Corporate India.
Council members of the Institute of Chartered Accountants of India
(ICAI) are sharply divided on the subject because as auditors they are
bound by confidentiality pacts they enter into with clients.
A month ago the institute asked its members to adopt a system of 'know
your clients', which would help audit professionals distance
themselves from assignments that could question their credibility and
drag them into litigations. Among other things, the move was also a
fallout of the 2G probe that is keeping some of the senior
professionals behind bars.
But a rewriting of the code of ethics will have to address several
issues. "We may borrow some of the global best practices laid down by
the International Federation of Accountants, and consider other
aspects including the ones related to regulatory provisions and
economic offences," said G Ramaswamy, president, ICAI.
At present, an auditor uses the audit report, attached to a firm's
annual report, to point out anomalies and possible irregularities.
Only auditors of banks and institutions have been told by the RBI to
alert the regulator about frauds and violations. Besides reservations
that several auditors have in assuming the role of whistleblowers,
there is no provision for them to report irregularities directly to
the government.
"But the problem is in enforcement. Most auditors are discharging
their duties, but rarely is action taken against a company based on an
auditor's report or notes to the account," said S Santhanakrishnan, a
senior CA.
Under the circumstances, it is unclear whether auditors would be
comfortable reporting irregularities they spot in the course of an
audit directly to the government authorities concerned or law
enforcement agencies.
There are many issues under discussion and amending the code may take
4-5 months, said SB Zaware, a council member. The suggestions of
members will be considered, he said. The institute may consider
formulating guidelines to bring about the practice of rotation of
auditors if there are delays in amending the law.
It has also set up an internal committee to look into issues such as
black money and suggest ways to curb the generation of undisclosed
income. But there are grey areas like financial structuring that
corporates, advised by CAs and lawyers, use to jump regulatory
hurdles. While investigating the 2G scam, government agencies have
questioned some of these structures to look for criminal intent.
Sections in the profession think there is often a thin line between
structures that are above board and the ones that are aimed at
overcoming barriers in foreign direct investment rules and foreign
exchange laws. "For argument's sake, even if the institute discourages
CAs from giving opinion on certain structures it may think are dicey,
there are law firms and investment banks ready to offer their
services," said Anup Shah of CA firm Pravin P Shah & Co. Get a
Quote
Chartered accountants, who are often blamed for helping clients
sidestep the law and masking the truth behind numbers, will have a new
code of ethics.
divided over code of ethics
MUMBAI: Chartered accountants, who are often blamed for helping
clients sidestep the law and masking the truth behind numbers, will
have a new code of ethics. After a marathon council meeting last week,
the statutory body that makes the rules for the profession decided to
overhaul the present code.
Amid spiralling incidents of corruption, allegations against senior
professionals and a clamour for a strong anti-corruption law, the
council debated whether CAs can become whistleblowers even as they
play their fiduciary role in Corporate India.
Council members of the Institute of Chartered Accountants of India
(ICAI) are sharply divided on the subject because as auditors they are
bound by confidentiality pacts they enter into with clients.
A month ago the institute asked its members to adopt a system of 'know
your clients', which would help audit professionals distance
themselves from assignments that could question their credibility and
drag them into litigations. Among other things, the move was also a
fallout of the 2G probe that is keeping some of the senior
professionals behind bars.
But a rewriting of the code of ethics will have to address several
issues. "We may borrow some of the global best practices laid down by
the International Federation of Accountants, and consider other
aspects including the ones related to regulatory provisions and
economic offences," said G Ramaswamy, president, ICAI.
At present, an auditor uses the audit report, attached to a firm's
annual report, to point out anomalies and possible irregularities.
Only auditors of banks and institutions have been told by the RBI to
alert the regulator about frauds and violations. Besides reservations
that several auditors have in assuming the role of whistleblowers,
there is no provision for them to report irregularities directly to
the government.
"But the problem is in enforcement. Most auditors are discharging
their duties, but rarely is action taken against a company based on an
auditor's report or notes to the account," said S Santhanakrishnan, a
senior CA.
Under the circumstances, it is unclear whether auditors would be
comfortable reporting irregularities they spot in the course of an
audit directly to the government authorities concerned or law
enforcement agencies.
There are many issues under discussion and amending the code may take
4-5 months, said SB Zaware, a council member. The suggestions of
members will be considered, he said. The institute may consider
formulating guidelines to bring about the practice of rotation of
auditors if there are delays in amending the law.
It has also set up an internal committee to look into issues such as
black money and suggest ways to curb the generation of undisclosed
income. But there are grey areas like financial structuring that
corporates, advised by CAs and lawyers, use to jump regulatory
hurdles. While investigating the 2G scam, government agencies have
questioned some of these structures to look for criminal intent.
Sections in the profession think there is often a thin line between
structures that are above board and the ones that are aimed at
overcoming barriers in foreign direct investment rules and foreign
exchange laws. "For argument's sake, even if the institute discourages
CAs from giving opinion on certain structures it may think are dicey,
there are law firms and investment banks ready to offer their
services," said Anup Shah of CA firm Pravin P Shah & Co. Get a
Quote
Chartered accountants, who are often blamed for helping clients
sidestep the law and masking the truth behind numbers, will have a new
code of ethics.
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