ICAI disciplinary moves have impact

The move by the Institute of Chartered Accountants of India's (ICAI) to convene regional disciplinary committee meetings has led to a quantum jump in cases taken up and cleared during the fiscal 2003-04.

The fact that the institute means business has raised the number of complaints. But awareness of the new strictness has led to better standards of conduct, thus leading to a fall in the number of persons found deficient.

During 2003-04, the number of CAs found guilty under Section 21 of the Chartered Accountants Act fell to 32 from 37 registered during the previous year. The list of erring chartered accounts ran even longer in 2001-02, with 55 CA's being pulled up.

The disciplinary committee met on 20 occasions over 34 days across the country and declared guilty 12 CAs under the first schedule of Section 21, another 16 under the second schedule and four under both, during the year (includes cases referred prior to the reporting period).

This time around the council considered 390 cases for its prime facie opinion and referred 171 to the committee, compared to just 173 and 66, respectively, in the previous year. Also the council considered 72 reports (including the backlog) of the disciplinary committee against 75 in the previous year.

The first schedule centres on the conduct of CAs and checks their professional independence and integrity. For instance, soliciting clients for professional work, charging fee as a percentage on profits are deemed as misconduct.

The second schedule, which requires action by a high court, deals with the failure of a CA to disclose substantial interest in his report while expressing his opinion on financial statements of firms in which he or his firm or a partner of his firm has strategic interest.

Failure to disclose a material fact known to him, failure to obtain sufficient information, negligence of professional duties, failure to point out a known material mis-statement and slackness in inviting attention to any departure from the accepted procedure of audit are dealt under this schedule.

ICAI follows a council level and disciplinary committee-level regulatory mechanism. First, it scrutinises complaints received against members and forms prima facie opinion on whether to refer the case to the disciplinary committee. Next, the disciplinary committee conducts its enquiry and concludes whether the member is guilty or not.

A senior ICAI functionary said the committee has been able to dispose of cases swiftly as it has stepped up its level of activity. It decided to meet with minimum strengths at times and refused to accept repeated requests for adjournments.

Inspite of the changes, the disciplinary committee's workload is still small. For instance, The Institute of Chartered Accountants England's professional standards office (equivalent of ICAI's disciplinary committee), assesses over 2,000 complaints annually and investigates 35 per cent of them.

Around 4 per cent of all complaints end in reprimand, fine or exclusion. There conciliation too plays a role, accounting for 25 per cent of the cases.