DRAFT SUGGESTIONS / MEMORANDUM FOR THE COUNCIL

DRAFT SUGGESTIONS / MEMORANDUM FOR THE COUNCIL

 

Dear Members,

 

A proposed charter of demands / Memorandum is here. This is only one brain preparation so having 100% flexible for any new idea / demands. I think the members shall come forward to form a uniform opinion of the subjects. Thereafter members Charter of Demands/ Memorandum   be submitted to the council with a request to act upon those for the smooth functioning and running of the Institute. It shall definitely be in welfare of the members of institute especially the members of category III and IV .Broadly I am giving here the main points. On submission, we would like to pressurise the council to act upon the same. Members are requested to suggest various suggestions/ideas /opinions on the subject as we have kept it under changeable mode. Please keep in mind about making long term interest aiming a credible profession rather than populist approach to achieve short term goal. As elections are round the corner we would like to see the implementation of the suggestions before the next council elections. If we are willing to make decisions for a change, it shall definitely have a positive mode. Don't fall victim to what I call the ready-aim-aim-aim-aim syndrome. You must be willing to fire as opportunities are not knocking so we have to build another door.

 

Roughly the wide-ranging areas are as follows.

 

 

1.     To suggest suppression of Malpractice being adopted in filing MEF forms.

 

To create a foolproof mechanism for a preparation and submission of Empanelment’s popularly known as MEF .Some of the malpractice being adopted by members and further suggestions are,

 

A.    Transferring Head Office to other cities to keep off the cooling procedure.

 

B.     In place of Head Office, The administrative office is recognising by firm infrastructure with HR, Partners residential addresses, Article residential addresses etc.

 

C.     100% submission of I. tax returns of firm & partners.

 

D.    Uploading of MEF through Digital signature to avoid the bogus uploading of MEF forms by unauthorized person.

 

E.     A amnesty scheme be adopted where member belong to a small place of a district and goes for cooling because the centre covers a District rather than township/City.

 

F.      Year of establishment of firm be replace with date of formation of firm.

 

G.    Hard copy of the form be verified by two practicing members along with their MEF No. so as to verify the genuineness of the details of the firm and I Tax returns etc. In case of any wrong submissions, action be initiative against such firms also.

 

H.    Categorisation also require total overall. The numbers of years of the firm , the number of years of practicing members be also included in the overall recognition of Category of firm. C & AG model of giving weight age may be adopted with further suitable changes.

 

I.       First three year rest to new practicing Chartered Accountant be abolished.

 

J.       An amnesty scheme be opened for two months for reconstitution of firms after adoption of new norms so as to save one year of Bank Audits. The date of 1st January 2012 be changed to Ist July for this year.

 

2. Statutory Audit

 

A.    To discuss the issue of managerial autonomy given to boards of Public Sector Banks to appoint their own auditors with the Government and RBI. This is because of the fact that more and more members will have to approach the banks for their names to be included in empanelment and it has a potential to kill the audit affairs as a whole. In no case it should be on the mercy of the respective bank.

 

B.     The availability of Branch Statutory Auditors panel shall be in the ratio of 1:1 as per the numbers of vacancies available.

 

C.     Every empanelled auditor should get allotment of branches. The banks should accommodate the Auditors of their list to the branches available.

 

D.    Firms Categorisation wise allotment be strictly followed. There should be clear guidelines about the entitlement of a Firm Allotment as per category.

 

E.      All private and foreign banks should be covered in the RBI net for the appointment of their auditors. Each & every branch of public & private Bank should be under mandatory audit independently.

 

F.      Presently problems are being faced by members which require quick redressel. The common problems which are being faced by the firms are as under.

 

Ø      Where irrevocable consent was given by the auditor for appointment as auditor however, no audit has been allotted to these firms.

Ø      When firms sent consent, the allotment was denied on the ground that the consent was received late or not received at all.

Ø      The firms which does not fall into the cooling canters, no allotments of branches were made. In other words the cooling of 33 canters has been made applicable to whole of the country.

Ø      In case of firms are the continuing auditors of the bank but the said bank denied the audit allotment to the firm stating name of the firm has not been forwarded by RBI?

Ø      A number of cases are there where mismatch between banks and the firms regarding category forwarded by ICAI to RBI and category of the firm forwarded by RBI to Banks.

Ø      The data sent by regional office to PDC was not updated. The wrong entry of employment which later rectified but sent PDC the wrong entry of a ladty candidate from Ranchi should be taken as case study as many more cases shall be there.

Ø      Removal of empanelment faults on urgency lines where Institute is at fault.

Ø      Calling for the consent from the Auditors with in hours also generate many reasons for missing the professional opportunities.

Ø      The names of such auditors who were conducting the internal audits/ concurrent/ indebtness have been approached by the same bank offering statutory audit assignment. It shows there is some communication gap with the RBI or by the RBI.

Ø      The auditors do receive the threats from the management for non allotment of branches next year in case of identifying NPA/Frauds etc. Many firms are being denied of assignments as per prescribed norms.

 

 

 

3. Concurrent Audits

                       

A.    The coverage of business, various activities and branches to be covered by the concurrent audit shall be determined universally for all the Banks.

 

B.     The level of Branch business shall be on the basis of quantum of deposits + advances. All Branches of having + 50 Crore shall e served with the Concurrent Audit.

 

C.    All firms of whatever category shall have a 1: 1 ratio of Partner : Branch.

 

D.    The fee structure should be uniform and should be revised manifold. The minimum fee of the Concurrent Audit shall be Rs. 25000/- per branch.

 

E.     The requirement of taking attendance from Management be dispensed with.

 

F.      A uniform Concurrent Reports be implemented for various Banks.

 

G.    All private and foreign banks should be covered in the RBI net for the appointment of their auditors. Each & every branch of public & private Bank should be under mandatory audit independently.

 

4.. Internal Audits

 

A. wherever internal audit was required to be carried out, the same be carried out only by Chartered Accountants or firms of Chartered Accountants highlighting the possible risks involved in internal audits carried out by persons/ firms/ companies other than by the members of the institute/firms of chartered accountants as they were not subject to any disciplinary mechanism.

 

5. Tax Audits

 

A. There should not inclusion  of CS or /& CMA in the definition of ACCOUNTANT in the proposed DTC.The Chartered Accountants  shall have monopoly over these Tax Audits.

 

B. The guidelines issued by the ICAI don’t have any impact on the working of the Members because as per CBDT data, more than 7000 Tax Audits are having the membership Numbers which were never allotted by Institute. 5000 dead Chartered accountants have signed the Bank Audit reports. Some members have signed more than 1000 tax audits and thousands have signed more than 45.

 

C. A sincere approach is required in fixing the Tax Audit limits. Technically there is no difference between an audit u/s 44AB or 44 AD. So the overall limit be increased and should count both type of audits.

 

D. The period of disqualification of authorized representative should not be determined by CCIT as provided in Section 270(4) Sub-section 5 of New Direct Tax Code for disqualification of an accountant being found guilty of misconduct and it should be decided by our own Institute Disciplinary mechanism only.

 

E. The Council under Clause (1) of part II of the Second Schedule of the Act should prescribe and regulate the uniform fees based on the turnover to be charged by the members.

 

 

 

6. I. Tax Audits u/s 142.

 

A. An audit u/s 142(2A) shall be used by the authorities regularly with the ICAI assistance.  The matter shall be taken on priority with the Finance Minister and ICAI should take a lead role in such assignments.

 

 

 

7. C & AG Audits

 

A. There should be manifold increase in the fee structure of C&AG. The fee structure should be based on the recommendation of fee structure of ICAI.

 

B. The branches of Insurance companies should be treated separately from Divisional Offices.

 

8. . Scraping Tenders.

           

A. Tendering of CA work be banned with immediate effect. The Council should formulate the guidelines to regulate the tendering process under Clause (6) of Part I of first schedule.

 

9. A foolproof procedure for verification of attestations on financial statements submitted by borrowers

 

A. Borrowers are submitting the financial data’s with Chartered Accountants seal by virtue of Banking Management faith on profession. The same is grossly misused by some black sheep or outside agencies. This is also important in view of IBA request to The Institute of Chartered Accountants of India seeking a foolproof procedure for verification of attestations on financial statements submitted by borrowers, at the level of bank branches, which is simple and easy to administer.

 

10. Audits from National Agricultural Bank for Agricultural and Rural Development.

 

 

1. The present system is total failure. These audits should be reserved for Category III & IV auditors.
2. B. The requirement of DISA qualification be dispensed with. There is no logic of having DISA qualified Auditors when there are no CBS branches.
3. The fee is very low; it should be revised immediately in consultation with NABARD.
4. The audit panel should be transparent and in advance.

 

11. Survey for Category III & IV th firm

 

A. There should be a survey for Category III & IV firms on the line of survey of top five hundred listed companies (in terms of market capitalization) excluding PSUs as to their expectation of auditors recently approved by the council.

 

12.  The proposed Company Law Bill

 

A. Why there are harsh Proposals against the Auditors?

If the present Companies Bill, which is pending at the parliament, is passed in its present form it will further curtail the autonomy of ICAI in relation to issue of auditing standards and disciplinary matters. Further, considering the punishments being applied on the auditors it appears that small and medium-size audit firms will find it difficult to continue in audit practice. This will have a drastic effect on their professional avenues and shall be detrimental to the development and progress of our profession. The provisions of section 140 for removal of auditors and punishment of erring auditors are very harsh and apply to auditors of all companies.  Similarly, provisions of section 147 providing for punishment and fine also apply to auditors of all companies. The provisions of section 144 prohibiting auditors from rendering certain consultancy services apply to all companies. If the auditors of a company contravene the provisions of sections 143 to 145, the auditors shall be punishable with a minimum fine of Rs.25,000 which may extend up to Rs.5 lac.

 

B. Why there are Imprisonment provisions against the Auditors in case of company fraud?

Section 140(5) gives very wide powers to the Tribunal to take action against the auditor or the audit firm. It is provided in this section that if the Tribunal is satisfied on its own, or on an application by the Government or any person that the auditor of a company has acted in a fraudulent manner or assisted in any fraud by the company, its directors or officers, it can order the company to change the auditor. Further, if the Government makes an application to the Tribunal, and it is satisfied, the Tribunal can pass an order within 15 days that the auditor of the company shall not function as auditor and the Government shall, thereafter, appoint another auditor in place of the auditor so removed.

 

 

C. Why there is requirement for Reporting by Auditors ?

The Government is also given authority to pass an order specifying the matters on which the auditors have to report. Such order can be passed in consultation with the NFRA appointed u/s.132. If the auditor of a company finds that an offence involving fraud has been committed against the company by officers or employees of the company he has to report to the Government within such time and in such manner as may be prescribed by rules. The above provisions apply even to a Cost Accountant in practice relating to cost audit of a company u/s.148 as well as to the Company Secretary in practice conducting secretarial audit u/s.204.

D. Why there are restrictions of Auditors working?

Section 144 is a new section in which it is provided that the auditors of a company and their relatives can render such other services as are approved by the Board of Directors or the Audit Committee. It is, however, provided that such services shall not include:

(i) Accounting and book-keeping services.

(ii) Internal audit.

(iii) Design and implementation of any financial information system.

(iv) Actuarial services.

(v) Investment advisory, investment banking or any other financial services.

(vi) Management services.

(vii) Any other services as may be prescribed by rules.

 

The Institute should oppose the above mention proposal in the interest of profession.

 

 

 

So join the discussion. Submit your suggestions at drafticaimemo@yahoo.com

 

 

 

CA AMRESH VASHISHT, FCA, LLB,DISA(ICAI)

Member,ICAI Committee For DIRECT TAXES 2011-12