Don't count us out, says ICAI

The Institute of Chartered Accountants of India (ICAI) has taken exception to the fact that the role of the institute in formulating accounting standards has been overlooked in the draft Companies Bill.

It has also opposed other provisions like bringing certain assignments relating to accounts and audit under the purview of secretarial compliance audit and including auditors in the definition of officer, in its response to the concept paper on the Companies Act, 1956.

In its list of suggestions sent to the ministry of company affairs, the ICAI has also said that the terms and references of the audit committee, the list of the non-audit services to be prohibited and qualifications of the auditors should be mentioned explicitly in the Act, rather than prescribed as rules later.

It has pointed out that the draft Bill recognises only those accounting standards that are prescribed by the Centre in consultation with the National Advisory Committee on Accounting Standards (NACAS).

The draft does not even allow for the time gap between the issuance of the standard by ICAI and its prescription by the Centre.

"This could lead to financial indiscipline, as companies may follow any accounting practice in the interim," the ICAI said.

It has suggested that till the standard is prescribed by the government, the one issued by ICAI be considered as an accounting standard for the purposes of the Act.

ICAI has also said that the role of NACAS should be restricted to being an advisory body. The draft Bill gives the body power to prescribe standards on its own, without the involvement of the government.

The institute has said that the purpose of including auditors as officers of companies was unclear, when even the whole-time company secretaries were not.

There were adequate clauses in the Act to deal with liabilities of the auditors.

"An auditor being independent, cannot be the officer of the company. By doing so, the auditors would be made liable for those violations that are responsibility of the management," ICAI said.

In order to preserve independence of auditors, a special resolution should be required for their removal. The draft bill has not included this provision even though it was present in Companies Bill, 2003.

To further enhance the independence of auditors, the auditor who has resigned should be required to give reasons for his resignation at the general meeting held for election of a new auditor, ICAI said.

The feedback note on the draft Companies Bill has also recommended that the remuneration of auditors should not include reimbursement of expenses.

"While reimbursement is not provided for any professional service rendered by an auditor, his remuneration is used to determine compliance with various notifications issued by the institute ensure independence of auditors, including ceiling on fee charged," the note added.