IN the nearly hour long speech that Prime Minister Narendra Modi delivered on the ‘CA day’, on July 1, 2017, which also happened to be anniversary day of the establishment of the Institute of Chartered Accountants of India (ICAI), it is said, with utmost respect, that the PM has been unduly harsh towards Chartered Accountants of India (CAs) and their apex body, which, undoubtedly, is an important profession and helps the government and the economy to proceed successfully in their onward journeys. When I am penning these lines, I am not holding any brief for the errant and uncouth CAs, who defame the profession by their misdeeds. Black sheep can be found in any walk of life, but their few numbers can hardly justify condemning an entire group or profession.
PM’s observations regarding CAs were:
*CAs are the prime facilitators of black money generation;
*They were extremely busy during the demonetisation period. Some of them even cancelled their foreign holiday trips and worked round the clock to facilitate conversion of black money into white money. He expressed wonder as to what exactly kept them busy?
*He said rather in a threatening way that evidence against three lakh firms has been obtained through data mining and that one lakh companies have been struck off the register of companies. He wondered as to who could facilitate such activities and certified such companies’ accounts?
The PM spoke quite sternly about the apex body of the CAs – the ICAI – which has extensive powers, mentioning that it has the power to conduct CA exams, certify CA’s fitness to practice their profession, to judge whether they had committed any violations and then punish the guilty. Yet, only 25 CAs had been found guilty of malpractices in the past 11 years while 1,400 cases were pending. He reminded the ICAI, in a pointed way, that its power has been conferred by Parliament, which can take it away too – meaning, perhaps, that if it is not able to control its members effectively, Parliament may not hesitate in taking away the powers conferred on the ICAI.
No exception could be taken to what the PM has said about those CAs, who indulge in dubious functioning, but will the situation improve by such broad public condemnation? The problem is more deep rooted and not confined to CAs alone.
No doubt, some CAs might have acted irresponsibly in some situations – may be in the context of demonetisation as well as stated by the PM – but such aberrations have been consequent to avarice greed; lust for power and money and various other evil tendencies in human beings. These have been happening in other countries also. In USA too, the audit mechanism proved to be ineffective. In the year 1930, an American audit firm, McKesson & Robins Inc., was found involved in massive deception of financial statements. The Metcalf Report, 1976 (USA) questioned the objectivity and perceived independence of an auditor, who is seen to be dependent on the company for his continuance as an auditor. So widespread were the evils of audit manipulations that several audit firms were found to have certified annual accounts, which showed non-existent assets and grossly overstated profits. Satyam’s instance in India is also like this. Human weaknesses are universally found not only in the audit profession but in other professions also like that of advocates, where evidences are concocted, witnesses tutored, false affidavits and documents filed and various other malpractices, are indulged in. Bureaucracy too is not immune from such evils. Reports in media often appear about government servants and persons in private sector indulging in questionable activities. In such situations, singling out mere auditors for public condemnation seems harsh.
Despite black spots mentioned, the audit profession has been progressing and growing not only in India but in other countries. On their certification of annual accounts of companies, investors put their immense funds in the corporate sector. They assist a number of government departments in carrying out their functions. For instance, under the I.T. Act, 1961, CAs are entrusted the work of special audit u/s 142(2A) of the Act, where the AOs find the accounts of the taxpayers complex because of multiplicity of transactions or because of specialised nature of businesses, etc. They certify the accounts of trusts and charitable institutions for getting tax exemptions. Audit of accounts of certain persons, engaged in businesses or professions u/s 44AB is mandatory in prescribed situations. Auditor’s test is necessary for tax benefits by way of exemptions and incentives; admissible under Chapter VIA of the Act and varied other checkups are to be done by auditors. Disarming them from such functions can adversely affect the work of various departments of the Central and State Governments. However, despite this, malpractice by some CAs is a matter of grave concern and cannot be ignored.
One measure adopted in many countries, including India, has been to strengthen corporate governance and for establishment of audit committees and mandatory internal audit and appointment of independent directors in the companies listed in the SEBI. No independent study, however, seems to have been made on how this mechanism has helped improve the functioning of CAs.
Solution for such maladies can be found by following two pronged approach namely [i] regulatory and [b] reformatory. Under the regulatory approach, laws and rules need to be enacted to check unsavory practices in various professions. On these lines, a good beginning has been made concerning medical profession by the issue of Essential Commodities (Control of Unethical Practices in Marketing of Drugs) Order, 2017 to end insidious links between pharmaceutical companies and doctors. Similar orders need to be issued concerning other professions.
FURTHER, persons found guilty, need to be severely and expeditiously punished. It is sad to find, as pointed out by the PM, that only 25 CAs have been punished in the last 11 years. This is, prima-facie, unexplainable. The punishment mechanism, not only in ICAI but with other regulatory bodies, needs to be made effective and strong. Time limits for disposal of disciplinary and other proceedings for imposing punishments need to be fixed within which the proceedings must be concluded. The punishment, to be imposed, must be severe to work as a deterrent for others. The entire machinery in this regard will need a relook.
As far as reformatory approach is concerned, the solution to the problem lies in adherence to the principles of ethics and spirituality, aspects which need to be popularised with the same zeal and enthusiasm as ‘yoga’ in recent times. Doing so would gradually lead to self-discipline, self-improvement and transformation and inner ascent by individual efforts, resulting in positive orientation of thoughts, broadening of attitudes, cultivation of virtuous qualities and sincere adoption in conduct. Thus, in course of time, a tendency would develop to shun unholy practices. Thus, spirituality is no less important – rather needed in a larger measure in the present day materialistic world – than any branch of science. Of course, the results may take time to materialise. Spirituality could be part of curriculum for studies in schools. Broader aspects can be part of the training programmes of various national academies for civil services and for various levels, including that for executives and directors in companies.
Social condemnation of persons found indulging in such conducts, denial of appointments to persons found guilty of questionable practices as directors in corporations and as elected representative of people in various legislatures too can decrease malpractices in various segments of society. Serious thought needs to be given to such aspects.
The writer is former Chairman, CBDT