Supreme Court expressed the views and observations from a plea about the rule of ICAI. The rule is related to the professional ethics of chartered accountants. This year the number of audits is confined to sixty per year. This rule is under debate as it explains professionalism and fundamental rights. The fundamental rights of citizens regarding occupation and professional limitations are controversial subjects that led to further discussion.
Tax audit Regime:
In 1984, a tax regime was introduced. The Income tax act, 1961 was attributed with section 44AB from 1st of April, 1985. The section insisted that professionals and business houses declare the previous year’s turnover, sales and receipts with the standard auditing process. Auditing is periodical, and the process ends with an audit report from chartered accountants. Chartered accountants stand as proof for the audit report with signature. Before 1985, the tax filing process was only for cooperative societies, private companies, and public companies. It is not for professionals. Section 44AB checks fraudulent practices and tax evasion. The second schedule of clause II of the chartered accountant’s act insisted on the limitations for the partners of chartered accountant firms. The professional with non-compliance with the law is treated as guilty of professional misconduct. The act was further amended in the parliament during 2006 and 2008 gatherings. The petitions about the auditing profession were filed in high courts and supreme courts. The institute accepts the changes with a determination to control professional misconduct. The tax audit regime came into practice on the 1st of April, 1985.
The argument of advocates:
The argument from the other side of the ICAI institute emphasised with fundamental rights of the citizens to do trade, business and occupation. The argument from the institute focused on the historical perspective. The cases from the auditing thrust the professionals to limit the number of audits. The upper limit for the years 20222 to 23 is sixty. The number of audits is exclusive of the audits under sections 44AE and 44ADA. In the year 2014 to 15, the tax limit of the audits increased to 60 from 45 numbers. In the year 2007, the tax audit limit witnessed a hike of 45 from 30 number. The ceiling limit is as per the number of companies. The argument had two sides. One is about fundamental rights and freedom. The other side is about professionalism and quality maintenance.
Questions from Judges:
The observation of Justice Khanna was that many big companies do a joint audits for their entities. If the objective of the audit is the same the audit report is also the same. Then, why is there a necessity for two audits? He says that law work with retrospective effect. Legality takes the past as an example. So, the limit was increased from 45 number to 60 number.
The justice wants the advocate to address these matters and submit their views on the same. The advocate needs to explain the joint auditors and retrospective benefits of auditors with relevant points.
Benefits of joint audit:
Large PSUs Indian Oil, NTPC, and ONGC do a joint audit. Banks and insurance companies do joint audits. Auditing standard 299 from ICAI explains the joint audit as the uniform approach. The advantages of the joint audit are as follows:
• Tackle management and counter collusion.
• Encourage market competition and make it less monopolistic.
• Encourage fieldwork, awareness, innovation and due care.
• Increase critical thinking and professional skills.
• Companies think about knowledge sharing and drive the team towards service quality.
• Companies discuss the technology suitable for the process with two audit teams.
• Complete the audit process on time.
• Help the companies to minimise the mistakes and risks that occur due to familiarity.
What is the penalty for not filing audited accounts?
As per section 44AB, the penalty is 0.5 per cent of sales, turnover, or gross receipts. The amount is approximately 1, 50,000. Section 271B states that there will be no penalty for companies with reasonable cause for the audit process.
Empanelment of advocate in ICAI:
The notification dated 20th July 2022 states that the institute is looking for lawyers to represent ICAI for four years. ICAI has a presence in India and the global education system. The core functions of ICAI are as follows:
• Regulate the process of the accountancy and auditing department.
• Set high standards and provide a quality education through a chartered accountancy course.
• Encourage the professional education of the existing members.
• Provide specialised knowledge through post-qualification CA courses.
• Formulate the standards for the accounting process.
• Framing the ethical standards.
• Do conduct peer review for the audit reports and standards.
• Frame professional ethics and check the performance of the members.
• Check the disciplinary mechanism through the disciplinary body.
• Review the financial reports.
• Advise the government regarding financial policies and course structure.
The selected candidate will represent the ICAI institute in various tribunals across India. The advocates with five of experience in corporate law, criminal law, civil law, service laws, labour laws, disciplinary matters, and property laws are eligible for the application. The representative will work under the legal directorate of the institute.
Conclusion:
Auditors work for the quality standards of the auditing profession. They work with ground reality and interest towards the society and nation in general. They wish to make the auditing profession “Atmanirbhar”. The benefits and concerns of the auditing profession are scrutinised by the ICAI institute. The laws that govern the auditing profession enhance professional ethics and quality standards.
