Position Paper on Regulation of Accountancy Profession and Oversight Mechanism in India Updated As on June 2019
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Position Paper on Regulation of Accountancy Profession and Oversight Mechanism in India Updated as on June 2019 Updated as on June 2019 Positi on Paper on Regulati on of Accountancy Profession and Oversight Mechanism in India The Insti tute of Chartered Accountants of India © 2019 by The Institute of Chartered Accountants of India All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher. Requests for permission should be directed to [email protected] or mailed to The Secretary, The Institute of Chartered Accountants of India, ICAI Bhawan, Indraprastha Marg, Post Box No. 7100, New Delhi 110 002 First published in 2018 Second edition (updated) in 2019 Position Paper on Regulation of Accountancy Profession and Oversight Mechanism in India Typeset and printed by Perfact Impression Pvt. Ltd., New Delhi Published by The Institute of Chartered Accountants of India, Indraprastha Marg, New Delhi 110 002 For further information on “The Institute of Chartered Accountants of India”, visit ICAI website: http://www.icai.org Contents Foreword (v) List of Illustrations (vii) Executive Summary (ix) Chapters Chapter 1. Evolution of Accountancy Profession in India 1-10 1.1 Birth of ICAI – Constituent Assembly deliberations 1 1.2 Sagacious Journey so far 3 1.3 Spotlight on ICAI—From Who’s Who of India 5 Chapter 2. ICAI–Towards Nation-building 11-18 2.1 Regulatory 12 2.1.1 Recognition through Internationally-Benchmarked Education and Training 12 2.1.2 Compliance with International Standards on Auditing and International Accounting Standards 12 2.1.3 Ethical Standards- A Hallmark of What Profession Stands for 13 2.1.4 Suo-moto Initiatives on Regulation—Financial Reporting Review Board 14 2.1.5 Peer Review Board 16 Chapter 3. Ensuring Quality through Robust Disciplinary Mechanism 19-31 3.1 Path Trodden and Road Ahead 19 3.2 ICAI Disciplinary Mechanism 22 3.3 Quality Review Board—Powerful Oversight Mechanism 26 Chapter 4. Company Law Amendments and its Silhouette on Role of Chartered Accountants 33-36 Chapter 5. Economic Offences—Collective Governance Failure/Regulatory Failure or Aberrations 37-41 Chapter 6. Leveraging NFRA towards Symbiotic Relationship with ICAI 43-54 Chapter 7. The Way Forward 55-64 Annexures A. Who’s Who of India Speak on Accountancy Profession and Professionals 65-73 B. International-Benchmarked Education Improving Quality of Attestation Function—Accounting Standards/ Indian Accounting Standards/Guidance Notes and Their Importance 75-78 C. Evolution and Stringent Setting of Standards on Accounting in India 79-81 D. Evolution and Stringent Setting of Standards on Auditing (SAs) in India 83-84 E. Ethical Standards for Accountancy Profession 85-88 F. Initiatives of Peer Review Board 89-92 G.1. Section 132 of Companies Act, 2013 93-95 G.2. Draft Rules for NFRA, as Issued by MCA in October 2013 for Public Comments 97-121 G.3. Suggestions Submitted by ICAI on Draft Rules for NFRA, as issued by MCA in October 2013 for Public Comments 123-129 G.4. Inputs on Procedures to be Followed while Dealing with Complaints/Information Cases under NFRA Rules, as Provided by ICAI on Draft Rules regarding Enforcement as Provided by MCA in December 2016 131-153 H. Suggestions Submitted to Parliamentary Standing Committee on Finance on 31st May 2016 155-178 Acknowledgments 179 Foreword he Indian accountancy profession, at the economic epicenter, is vehemently steering growth of business and industry to unprecedented levels. The profession, led by the Institute of Chartered TAccountants of India, has acquired a prominent position to become vanguard of public interest and propriety in the country. The profession continues to remain catalyst of business growth, sustainability and governance. Built on strong edifice of ethical values and morals, the Institute of Chartered Accountants of India stands tall as one of the most reliable, trusted, authentic and renowned regulator in the eminent world of accountancy and business. Working with government and institutions the profession is adding credibility and trust to the business financial systems. The Institute upholds an indomitable legacy of unwavering ideals and even after decades of its admired existence continues to reflect as a prestigious symbol of good faith, academic brilliance and economic goodwill. The Institute has persistently endeavoured to foster educated, productive and engaging members, who are relentlessly rendering expert services in the area of accountancy, auditing, finance, taxation, laws, business strategy and so on. In fact, members of the profession have scaled great heights to acquire illustrious and eminent positions in the global business world, much more than mere accountancy and finance. Through the echoes of time, the Institute continues its journey by the constant enforcement of dependable regulations and propagation of high standards. These sworn-by regulations and standards orbit around ethical corporate governance and dissolve scope of economic malpractices, fraud and deceit. As it is correctly remarked, change is the only constant; these standards are also modified to align with the developing industry and progressing humanity. With the alliance of the professional and commerce sphere, it is noteworthy that CA members perseveringly drive forward towards yielding prosperity and providing welfare. In order to respond to the regulatory changes at national level, the Institute of Chartered Accountants of India released this position paper in 2018 which unraveled the momentous journey of ICAI in building a strong and resilient financial system by persistent efforts by unleashing financial regulation in the country all through. The instant publication is an updation of the Position which was released in 2018 and how ICAI has been able to present its strong role in effective delivery of the governance and regulation and meeting the changing demands of the stakeholders. This publication brings out historical and developmental perspective of financial regulation by ICAI. It explicates the current model of regulatory framework that has evolved with the Indian economy and how it is superior in Indian context to models followed elsewhere in the globe. The publication puts forward a strong case for emulating Indian model by other nations for effective regulation through a statutorily recognized body, instead of multiple organisations trying to attain same results. Contrary to the current disposition of shifting some of the power vested in ICAI outside its purview, the publication effectively brings out the need for empowering ICAI with more powers as a mechanism to correct financial aberrations in the business. At a basic level such a scenario augurs well with managerial principle that authority and responsibility must go hand in hand. In the end it is to acknowledge and graciously compliment the efforts of CA. M.P. Vijay Kumar, Council Member in steering the entire project for first and current volume under his close guidance. Contribution of Shri Rakesh Sehgal, Acting Secretary and his team of officers mentioned in the acknowledgment section for their contribution to the current document; the first version of which was launched last year to which he extensively contributed is also acknowledged. v List of Illustrations Fig.2.1: Meetings of Board of Discipline/ Disciplinary Committee held from April 2008 to April 2019 (p. 12) Fig.2.2: Statistics of Cases referred to Ministry of Corporate Affairs/SEBI/C&AG (p. 16) Fig.2.3: Fresh reviews to be initiated under New Categories (p. 18) Fig.3.1: List of Significant Changes Post-Amendments by way of Chartered Accountants (Amendment) Act 2006 (p. 20) Fig.3.2: Details of Cases disposed by Disciplinary Committee and Board of Discipline (after being referred for further enquiry) during 2014-2019 (p. 21) Fig.3.3: Cases dealt under Chartered Accountants Act, 1949 [u/s 21D, under old Mechanism] as on 30th April, 2019 (p. 23) Fig.3.4: Cases dealt with under Chartered Accountants Act, 1949 (as amended by Chartered Accountants (Amendment) Act, 2006 (New Mechanism) (Since inception till 30th April 2019) (p. 23) Fig.3.5: Details of Reviews conducted and Recommendations made by Quality Review Board (financial- year-wise) (p. 28) Fig.6.1: Structure of NFRA (p. 51) Fig.6.2: ICAI Representations on National Financial Reporting Authority on Autonomy (p. 53) vii Executive Summary hile India prepares itself for transition to a developed economy and going to be the fourth largest economy in the world soon, the Indian chartered accountancy profession has its own Wcontribution to this progress march by providing a matured and reliable financial reporting and related governance system. It has kept at bay the financial turmoil witnessed in developed economies like US and others which, despite creating a series of reforms in their financial sector, are still trying to grapple with one or other crisis leading to virtual collapse of the financial systems. The driving point not to be missed here in the current scenario is that India has not witnessed any sort of financial rattling since Independence and has always stood on its internal strengths and has been able to withstand even the shocks that financial landscapes the edifice elsewhere. The Chartered Accountancy profession has been able to provide resilient, vibrant, well insulated framework and thus able to mitigate and navigate in times of risks and uncertainty which other developed economies were not able to do despite their so called well regulated financial economies! ICAI has reinforced the role that the accountancy profession has to play in providing high quality financial information, facilitating market discipline, and fostering confidence of various stakeholders by being a prudential regulator. ICAI has achieved this by focusing on the intrinsic quality of chartered accountants attained by way of high quality & internationally benchmarked education and training, continuous professional development of its members in niche & emerging areas.