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Hey, CAs. Be more vigilant.
Prime Minister Narendra Modi threw a bombshell at the Institute of Chartered Accountants of India (ICAI)’s Foundation Day celebrations. While addressing members, he asked, “Are you working for the nation or the client?”

He made it demonstrably clear that the Centre was upset that only 122 Chartered Accountants (CAs) were punished for their misdeeds in the last 11 years; and the fact that 4000 plus accountants have escaped punishment.    

There is no doubt that CAs are integral to India’s economic growth. They need to be competent and vigilant. Failure on their part affects both the client and civil society at large. Sources in the audit circle say that they are compelled to certify the audits of some PSUs whose accounts were directed to show minimum profit.  The situation is alarming when it comes to private companies, as some of the clients are disinclined to disclose even their turnover. 

A few CAs pointed that the audit firms, exceptions apart, are not willing to antagonise their clients: “we are only asked to find out the misdeeds of employees, but not the manner in which the profit is earned. Audit firms, in general, are not willing to lose their hard-earned clients, as others are waiting in the wings to grab the opportunity,” says M Karthikeyan, a CA.

 

Clients rule the roost...

Some chartered accountants argue that success is not measured in terms of money, as the edifice of the profession is based on ethical principles.  “But the reality is different,” says M Subramanian, an Internal Auditor.  According to him, clients invariably rule the roost. Another CA pointed that there is no use criticising PwC, as any other firm in its shoes would not have acted against the wishes of Satyam.

V Parameswaran, another auditor, narrated how he was asked by his firm to desist from audit because he asked the client uncomfortable questions and the client didn’t like it one bit. Auditors are likely to end up as bad boys if they insist on supporting documents and vouchers for purchases made by the clients for some transactions.

 

Tax audit failed to check tax evasion....

Yet sources in the accounting circle say that behind every successful tax plan, there is a chartered accountant.  India requires tax audit by external auditors. According to some of them, there is no second opinion that accountants performing tax audits have direct responsibility for ironing out and exposing tax evasion.  A professional CA, V S Thirumalai said that though tax audit has been around for the last 33 years, it has failed to check tax evasion.

 

No additional incentive

The accounting arena regrets that some chartered accountants with vested interests advise their clients to evade tax. It is also felt that SEBI and RBI need to brush up their monitoring capacity by enforcing compliance with regulations. However, a few insiders in the Institute aver that expecting the regulated to enhance the standards of regulation is absurd. They feel that the regulated do not get any additional incentive to make the system work like a well-oiled machine. 

 

Soaring NPAs...

The soaring level of non-performing assets (NPA) indicates that all is not well with auditing. Though banks are subjected to auditing on regular basis, NPAs are going from bad to worse. It is also revealed that financial statements of some borrowers display massive frauds. Nonetheless, so far attempts were not made to nab the auditors for their failure in such transactions. It is distressing that despite poor record of the auditors, ICAI canvasses for expansion of audit coverage in nationalised banks.

 

Who is to bell the cat?

K Rahman Khan, a former Deputy Chairman of Rajya Sabha, urged the chartered accountants to perform their duty with moral conscience. However, a section of CAs argue that it is easy to ask them to lose a client on moral grounds. “Everything looks nice on paper, but who is going to bell the cat when it comes to facing the music? How many chartered accountants are in a position to incur the wrath of their superiors,” some of them ask.

A large number of audit firms regret they are required to go out of the way to please their clients for renewal of their contracts. In response to the Prime Minister casting aspersions of their role after demonetisation, a section of CAs now question the tax exemption accorded to political parties. People were allowed to deposit Rs 20,000 per individual with tax exemption for such parties initially and subsequently reduced to Rs 2000 per head when the opposition parties expressed their reservation over such  decision: “Under the circumstances, can any constructive auditing be conducted by an accountant,” asks R Seethapathi, an accountant.     

It is imperative on the ICAI to ponder over the alarming situation, as it is time to treat the malaise. 


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