Saturday, January 15, 2011

CAG NORMS - PSU AUDIT - NEED FOR A REVIEW

The Office of Comptroller and Auditor General of India (CAG) has recently revised empanelment norms for CA firms wherein the criteria for selection of CA firms for appointment as Statutory Auditors of Public Sector Undertakings where the audit fee is above Rs. 1.5 lakh has been comprehensively changed (details at page No. 6 ).

The Hon'ble CAG needs to review the new prescription once again and may consider :


  • To apply the new norms only for next year empanelment, it is important to give adequate notice to the firms to be empanelled, particularly when a large number of firms are already empanelled.
  • The requirement of exclusive association with a CA firm needs to be replaced by a provision that credit of standing of a particular chartered accountant is to be considered only in one firm chartered accountant where he is associated with. The requirement of exclusive association is acting against public interest and is the biggest hurdle in the growth of Indian firms of chartered accountant. It may be noted that no other regulators, for example, for telecom licence, or for mining lease, or for allotment of any other contracts, for example, construction of highways etc. insist on that a particular businessman should have association only with one Company. The business people are completely free to set up businesses with very complex structures, joint ventures and various other kinds of associations to enable them to grow and prosper. A similar liberty is necessary for Chartered Accountant Firms so that the CA firms can grow in size, capability and capacity. Even RBI should reconsider their stand requiring exclusive association.
  • The requirement of a minimum remuneration /compensation to a ACA Partner of Rs. 1.80 lakh per annum and to a FCA Partner of Rs. 3 lakh per annum is completely un-required. The requirements of profit sharing ratio are justified but there could be a situation that a chartered accountant firms have much lower net-profit, after paying taxes and it may not be possible for them to distribute more than the actual profit earned by them. This requirement will disentitle less profitable firms from the CAG empanelment and allotment and will considerably reduce the firms available with CAG for conducting mid-size and large size audits.
  • The requirements of minimum 6 fulltime CAs with at least 5 fulltime partners is again not necessary. CAG need not distinguish between partners and employees and in any case 6 is a very large number considering the audit fee of only Rs. 1.5 lakh plus.
  • The requirements to have a minimum existence of 10 years or more will disentitle younger CAs and younger firms from CAG audit. The younger chartered accountants are filled with latest knowledge and capability and rather CAG can consider certain categories of audit to be given to younger firms on a priority basis.
  • In case of merger, the lock-in period of 5 years for recognizing longevity of a partner's association, will act as a dampener to the entire efforts of ICAI to promote networking and merger.
  • The Hon'ble CAG may also please consider a substantial increase in currently very low audit fee being paid by large and mid-size public sector undertakings. In view of more and more financial frauds and scams and corruption cases coming to light, the profession of chartered accountants will like to support the CAG to act as preventors of frauds and scams. It may, therefore, be necessary to utilize the services of chartered accountants more elaborately with adequate depth and elaborate of the scope of audit, so that all major problems can be brought to light. We understand that while auditing PSU undertaking, the profession of CAs is contributing to the cause of the nation and the professional fee paid may only be indicative. Even then, it may be necessary to at least adequately pay for the costs of the manpower, overheads and other resources allocated by the CA firms, while conducting audit and other risk management exercises on behalf of the Government and CAG.

0 comments:

Post a comment