ICAI seeks auditor naming conditions in Companies Act

The Institute of Chartered Accountants (ICAI) wants the government to include several aspects such as conditions for appointment of auditors and their powers in the new Companies Act, instead of notifying them later.

The concept paper on overhauling the Companies Act, 1956 has proposed that appointment or re-appointment of auditors would be made in the annual general meeting of a company subject to conditions prescribed.

"Such provisions are substantive in nature and should be in the law, so that they can be changed through a parliamentary procedure," S C Vasudev, head of the Corporate Law Committee and the ICAI council member said.

For instance, powers of auditors and the audit committee, the concept paper has said that auditors would inquire into matters as prescribed and functions of the audit committee would also be notified, he said.

"One cannot change concepts such as powers of auditors or audit committees frequently, which is possible if they are specified in rules. This would also create ambiguity in law," Vasudev added. In fact, such a practice does not have a precedence anywhere else in the world, either, he said.

"Procedural provisions such as format of the balance sheet can be prescribed, but when it comes to functions and powers of any entity, it is better to have them as a part of law," Amarjit Chopra, another council member said.

Even though, shifting provisions to rules may give the law much needed flexibility, care needs to taken that a knee jerk reaction does not precipitate a change. Thus, it is important that rules are formulated with a long-term view and are time bound, Chopra added.

The corporate committee, which is preparing the representation to the ministry of company affairs and expected to submit ICAI's views next month, is expected to touch on several other issues.

ICAI may demand that the special audit be reserved for chartered accountants only, a member of the Corporate Law Committee said.

The concept paper allows chartered accountants and cost auditors to conduct special audits, when special audits deals with financial aspects only, while cost aspects are not looked into at all, he added. Moreover, internal audits, that has been made mandatory for producer companies should be made compulsory for all the companies, he said.