Shelve self-regulation

Nov 28 2013, 05:43 IST
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SummaryProfessional associations can set standards, conduct examinations, license practitioners, but misdemeanours should be covered by legislation

According to a recent news report the Institute of Cost Accountants is outraged by the new draft rules of the Ministry of Corporate Affairs that will substantially reduce the number of companies that have to be compulsorily cost-audited. Having seen many of these mandatory cost-audit reports, I am satisfied that they serve no purpose in any enterprise that is managed for optimum efficiency or profit. For those that are not managed well, the cost-audit report offers little insight to help them change. What the mandatory cost-audit does is to give easy employment to many hundreds of cost accounting firms.

Such bodies recognised by government statutes (chartered accountants, company secretaries, architects and medical practitioners) are supposed to be self-regulated. Self-regulation must identify malpractices, investigate complaints, and take tough action, including disbarment of those guilty of malpractice. However, there have been very few instances of such investigations and actions by statutory bodies. In the case of the corporate, there have been many instances when an audit report that gives a clean chit is followed by public disclosures of fraud or other acts that should have been detected by one or the other statutory body.

Satyam, National Spot Exchange Ltd, Deccan Chronicle, Kingfisher are only a few such problem-companies. Many companies that have misled the banks and the public had been given good reports by statutory bodies.

All statutory bodies have regulatory powers given to them by government over the practitioners that they have licensed after education, training and examinations. Self-regulation has not prevented scams caused by carelessness or fraud by the licensed practitioners. What is worse is that in India, the rules allow penalties only on individual members, not on the firm which employs them to give professional expertise.

American medical practitioners fear lawsuits by patients and their relatives for malpractice. Damage payments and the insurance premiums to pay them are high. This makes medical care costs very high in the US. Apart from the courts, the professional medical association hears such complaints and takes stern action. Lawyers are another self-regulated group. American lawyers are hauled up for malpractice and other lawyers give evidence against them, as they do in other professions. Such is the case with other statutorily-recognised associations like certified public accountants. American professionals are willing to testify against fellow-professionals.

This is not the case in India. There are practically no instances in India of professionals

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