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News: Recently, the government introduced bills to amend the three Acts of Parliament – the Institute of Chartered Accountants of India (ICAI), Institute of Cost Accountants of India and Institute of Company Secretaries of India.
These institutions govern a trio of business governance-related institutions
Why have these legislations been proposed?
There have been a series of audit scandals in India Inc over the past two decades. For example, the Satyam accounting fraud, the IL&FS Scandal in 2018
The Parliamentary panel on finance advocated for changes in disciplinary action. The disciplinary action often falls short. There has been involvement of the auditors in some alleged financial scams. Thus created a need to revisit the existing disciplinary processes in the three institutes.”
What are the issues in new legislation?
The issues have been raised in the manner in which the legislation has been brought up by the government.
The three entities already have internal disciplinary panels. The proposal mandates that the committees should include external members. But it would provide another source of potential conflict.
Another proposal is to set up a new coordination body for the three bodies. It would be headed by a secretary-level officer. This increases the probability of government interference in the functioning and erosion of autonomy of these institutions.
What are the issues in the functioning of the ICAI?
It has been reluctant to improve the self-governance, the institutional systems and processes in line with global trends
The institute has been mostly led by family members etc. They don’t improve or crack down on unethical staffing practices.
What is the way forward?
In order to improve audit standards and promote professionalism in our chartered institutes, the centre should appoint chartered accountants to bank boards as nominee directors, giving them extra-jurisdictional responsibilities.
Opening up the membership of these institutes to overseas audit firms, can go a long way in improving the performance of these institutes.
Source: The post is based on an article “An unhelpful response to accountancy scandals” published in the Live Mint on 31st March 22.