Relevance: GS-3 Statutory, regulatory and various quasi-judicial bodies; Important aspects of governance, transparency and accountability; corporate governance; ethical concerns and dilemmas in government and private institutions.
Key Phrases : Disciplinary mechanism, conflict of interest, chartered accountants, company secretaries, cost accountants, gaps in the self-regulation, audit failures, Corporate governance,
Why in News?
- To tighten the disciplinary mechanism and streamline the functioning of chartered accountants, company secretaries and cost accountants, Finance and corporate affairs minister Nirmala Sitharaman will table in the Lok Sabha, The Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Bill, 2021.
Keypoints:
- The Bill will amend the Chartered Accountants Act, the Cost and Works Accountants Act, and the Company Secretaries Act.
- The amendment Bill will reform the disciplinary mechanism of the three professions i.e., chartered accountants, company secretaries and cost accountants
- It will also streamline the functioning of the three institutes governing the professionals i.e., the Institute of Chartered Accountants of India, the Institute of Company Secretaries of India and the Institute of Cost Accountants of India, making them more cohesive.
- The bills aim to deal with the conflict of interest between the administrative and disciplinary arms of the institutes.
- Firms will now have to be registered separately with the respective institutes and will come under purview of disciplinary mechanism.
- It is also expected to result in quick decision-making in disciplinary matters of professionals.
- Chartered accountants play a key role in the preparation and audit of financial statements.
- Company secretaries play a role in meeting statutory compliances.
- Cost auditors are vital in sectors where use of resources and energy needs close monitoring and have a bearing on the business’ competitiveness.
Need for the reform:
- In the wake of several high profile audit failures and the recent blowout of the number of non-banking finance companies such as IL&FS and DHFL, pressure has been mounting on the government to revamp the disciplinary mechanism and improve the functioning of the three professional institutes as regards their disciplinary action against erring members.
- The government was keen to address the gaps in the self-regulation of
professionals by the three institutes.
- The idea of the amendment is to step up oversight on the three bodies after a committee headed by Meenakshi Datta suggested several changes almost three years ago.
- Some of the proposals have already been accepted and the legal changes are being undertaken in consultation with the institutes.
- ICAI itself was open to changes in recent months and had sought to simplify the process in cases such as those were the Quality Review Board suggested disciplinary action against its members, who are chartered accountants.
- A six-member high level committee, with retired IAS officer Meenakshi Datta Ghosh as chairperson, was constituted by the Corporate Affairs Ministry in 2017 to review the existing mechanism to deal with misconduct among chartered accountants, cost accountants and company secretaries. It suggested that the disciplinary platform should be independent of the institute while pointing out that the current mechanism needed to be revamped.
- As a part of reform Government had already created National
Financial Reporting Authority (NFRA) as the sole independent
regulator for auditors of listed and large unlisted entities.
- Formed in 2018, it is an independent regulator to oversee the auditing profession and accounting standards in India under the Companies Act 2013
Conclusion:
- Auditors, accountants and company secretaries are considered as the first gatekeepers of corporate governance, on which the legal framework lays trust. The move to reform the disciplinary mechanism of professionals is part of efforts to improve corporate governance and the quality of preparation and reporting of key statutory documents.
Source: Live Mint
Mains Question:
Q. Auditors, accountants and company secretaries are considered as the first gatekeepers of corporate governance. In light of this discuss the need to strengthen the disciplinary mechanisms for them.
