ICAI “fully empowered” to act against big audit firms
July 6, 2024
In a July 3 order, the court said the ICAI is “fully empowered” to take action against the professional misconduct of these audit firms in accordance with law.
In a set back to Price Waterhouse & Co and KPMG affiliate BSR and Associates, the Delhi High Court has held that not just their partners, but the firms, too, would be liable to reply to notices issued by the disciplinary committee at the Institute of the Chartered Accountants of India (ICAI).
In a July 3 order, the court said the ICAI is “fully empowered” to take action against the professional misconduct of these audit firms in accordance with law.
The ruling serves to put the implementation of the Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Act, passed in April 2022, on the fast track. The court directed the government to notify the amendments, according to which the proceedings for misconduct could be held against CA firms also, rather than just the accountants.
The court asked the ICAI to start the consultation process to devise a framework for multinational accounting firms to operate. “Such firms contribute in bringing global best practices to India with immense opportunities for youngsters. They also render services to Indian businesses even at a global scale. Thus, the provisions relating to licensing agreements, brand usage etc., also need to be looked into,” the order noted.
The order comes as a lot a clarity has emerged on how ICAI and the National Financial Reporting Authority (NFRA) share audit regulatory functions. While ICAI has the authority to scrutinise audits, NFRA supervises auditors of listed entities.
The court also said that the 10 writ petitions filed by the partners at these audit firms are not tenable and, therefore, the stay orders do not deserve to be continued as well.
Emails seeking replies from PwC and KPMG didn’t elicit response.
Earlier, the nine partners at domestic affiliated firms of PwC and KPMG had filed petitions challenging the initiation of disciplinary proceedings against them by the ICAI committee alleging non-compliance with the provisions of the Chartered Accountants (CA) rules 2007 and the CA Act. These partners stated that since there are no violations being committed under the provisions of the CA Act, there is no member who is answerable to the notices of ICAI’s disciplinary committee.
Commenting on the court order, ICAI president Ranjeet Kumar Agarwal told FE that the order clearly states that the ICAI has the power to call the members in matters pertaining to global networking. He said global networking is the need of the hour and there should be parameters for this. “The international networking guidelines are currently in the works. After the advice of the ministry of corporate affairs, we will implement them this year,” he said.
The HC order said a single individual cannot be pinned down in such situations to be responsible for answering the complaint as ‘member answerable’. “The firm as a whole has to be held responsible if found culpable, in such circumstances, failing which the Act would be rendered toothless,” the court said.
The global affiliation of domestic audit firms is at the heart of the dispute between ICAI and the Big Four firms. For instance, the ICAI has maintained that the domestic affiliates of Price Waterhouse group have access to common resources, methodology, knowledge and expertise. For these shared services, the domestic firms pay 2.5% of their revenues to the international entity. In addition, ICAI said that each of the member entities works as one cohesive unit within the multinational entity, which is in violation of the CA Act.
[The Financial Express]
