From UPSC perspective, the following things are important :
Prelims level : ICAI
Mains level : Paper 3- Strengthening the ICAI's accountability
The Lok Sabha has approved a Bill to amend the Chartered Accountants Act, 1949, the law that governs the Institute of Chartered Accountants of India (ICAI).
What are the changes proposed in the Bill?
- Introduced in the Lok Sabha on December 17, 2021, and titled the Chartered Accountants, the Cost and Works Accountants and the Company Secretaries (Amendment) Bill, 2021.
- The key changes it proposes are in the area of discipline and governance and administration.
- 1] Discipline: The ICAI’s disciplinary committee and board of discipline will be chaired by non-chartered accountants (CA),
- Its elected council members will no longer be in a majority in them.
- 2] Governance and administration: The term of the ICAI’s Council will be raised from three to four years, the maximum number of consecutive terms for its elected members will be reduced to two from the current three;
- The ICAI’s Secretary will replace the ICAI’s president as its chief executive and perform the functions to be specified;
- The ICAI will appoint its auditor from the Comptroller and Auditor-General of India’s panel of CA firms;
- The Government will form a coordination committee for the ICAI and the Institutes of Cost Accountants and Company Secretaries of India.
- The Parliamentary Standing Committee on Finance has endorsed these changes and has further recommended an end to the ICAI’s monopoly in certification.
Challenges facing Chartered Accountancy and ICAI
1] Lacking critical thinking and analytical ability
- Senior industry managers say that many CAs do not have what it takes to succeed in the corporate world, i.e., analytical ability, critical thinking, appreciation of the business context, grasp of technology, and communication and presentation skills.
- CA students do not have in-class interaction.
- Also, the coaching is focused on cracking examinations rather than facilitating understanding and application.
2] Poor record in disciplining members
- The ICAI’s record in disciplining its members is even more problematic.
- There have been persistent complaints that the ICAI is lax in acting against errant members.
- In 2018, the Government had set up the National Financial Reporting Authority as India’s first independent regulator of accounting and audit.
- The proposed changes in the composition of the ICAI’s disciplinary arms will further limit its role.
- As a result, the ICAI will be effectively reduced to an examination board.
3] ICAI failed to keep pace with changes
- The ICAI was set up in 1949, largely as the Indian version of the U.K. institute
- Much of the work that CAs do and clamour for is a remnant of the licence raj.
- Many businesses and professions have changed beyond recognition as a result of the economic reforms initiated in 1991.
- The demutualised and technology-driven National Stock Exchange of India has transformed stock-broking.
- Indian IT and pharma companies now compete successfully with the best in the world.
- In contrast, CA has not kept pace with the changes in India’s dynamic economy and changing society.
- Overseas accountancy qualifications such as the Association of Chartered Certified Accountants (ACCA) and Chartered Institute of Management Accountants (CIMA) are gaining popularity in India, perhaps because they are recognised worldwide, are more relevant to current and future needs, and are accepted even in India by global companies and global accounting firms.
4] Challenges posed by technology such as AI/ML
- Accounting and auditing are more amenable to the replacement of humans by technology.
- AI, robotics, and other technological advances are likely to reduce the need for human intervention in accounting.
- Also, recent administrative reforms aimed at enabling ease of doing business and ease of living, such as faceless tax assessment, easy filing of tax returns, prompt refunds, rising threshold for tax audit, and abolition of Goods and Services Tax audit have greatly reduced the availability of captive, government-mandated, make-work business for CAs.
- Setting IIAs: The Parliamentary Committee’s suggestion to set up a string of Indian Institutes of Accounting (IIAs) on the lines of the Indian Institutes of Technology (IIT) and the Indian Institutes of Management (IIM) is innovative.
- At one level, they will end the ICAI’s statutory monopoly over certification.
- More competition should result in better quality and higher standards of conduct.
The Bill and the Parliamentary Committee’s report can be seen as efforts to drag the ICAI to the contemporary world. It would be wise to read the proposed changes as a warning and respond maturely.