DCA, ICAI Cross Swords Over Audit Services, Fee Structure

New Delhi, Aug 30: | Updated: Aug 31 2002, 05:30am hrs
The Department of Company Affairs (DCA) and the Institute of Chartered Accountants of India (ICAI) are heading for a clash over classification of certain services provided by chartered accountants (CAs).

While DCA wants services like tax audit, attestation of financial statements for banks and representation by CAs before statutory authorities on behalf of their clients in litigation proceedings as non-audit functions, ICAI says these services are mere extensions of statutory audit functions.

ICAI guidelines stipulate that non-audit fee charged by audit firms should be less than audit fee and DCA wants the parent body of CAs to implement this fee structure for services mentioned above. ICAI views tax audit, verifying financial statements for banks and appearance in tax litigation cases before income tax and sales tax authorities by auditing firms and CAs as attachment to their main statutory role.

According to Mr Ashok Chandak, president, ICAI, these practice areas are part of the audit portfolio. The National Advisory Committee on Accounting Standards, set up by DCA to make suitable recommendations to the government on the accounting standards formulated by ICAI, is deliberating on the issue, sources said.

Public accounting reform and investor protection as outlined in the US Sarbannes Oxale Act has become the basis of evaluation of accounting standards for audit firms. Though many standards included in the Sarbannes Oxale Act are part of the existing CA Act, 1949, ICAI on the basis of the US legislation has made recommendations to DCA to secure independence of auditors.

According to Mr Chandak, the suggestions relate to appointment, tenure, remuneration, audit qualification and include diversion of funds within the scope of qualifying audit reports.

ICAI has recommended introduction of system of joint auditors and fixation of auditors remuneration following certain parameters to be stipulated in the Act itself, instead of leaving it to management decision as is done currently.

The Registrar of Companies (RoC) and other regulators should not accept qualified audit report, ICAI has said in its presentation to DCA.

In what seems to be an extensive charter of dos and donts for auditors, ICAI has said that an auditors qualifications should be taken into consideration while determining the distributable profit for fixation of remuneration of the directors and for declaration of dividends.

The notice for the annual general meeting given by a company should include an item for consideration of adverse remrks for qualification in the auditors report and comments of the board of directors thereon and the scope of the audit should be modified to include divergence of funds by the companies, ICAI has said.