Auditor - UK & Indian Companies Acts
As per UKs Companies Act, the below are the Provisions governing the qualifications for Appointment of Company Auditor.
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25.(1) A person is eligible for appointment as a company auditor only if he
(a) is a member of a recognised supervisory body, and
(b) is eligible for the appointment under the rules of that body.
(2) An individual or a firm may be appointed a company auditor.
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A Recognised Supervisory Body means
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30.(1) In this Part a “supervisory body” means a body established in the United Kingdom (whether a body corporate or an unincorporated association) which maintains and enforces rules as to
(a) the eligibility of persons to seek appointment as company auditors, and
(b) the conduct of company audit work,
which are binding on persons seeking appointment or acting as company auditors either because they are members of that body or because they are otherwise subject to its control.
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On careful consieration of above provisions, it will be clear that UKs companies Act doesn’t prescribe / restrict any qualifications for Company Auditors.
It is the Body of Accountants established in UK which by its laws and regulations Supervise and control the Auditing Function is termed as “Supervisory Body” and its members are eligible for Company Audits.
By virtue of this provisons all Chartered Accounting Bodies (6 in number) which by its laws & regulations Supervising Auditing Functions fallen under Section 25 making their members eligible for Company Audits.
It is pertinent to note here that another Chartered Accounting body estabilised in UK i.e CIMA by its laws & regulations has not adopted the Supervision and control of Audit Function and always stayed as Customer to Audit Function.
Had CIMA adopted the Supervision / control of Audit Function , it would have been Classified as “Supervisory Body” under section 25 making its members eligible for Company Audit.
The conclusion is, it is not the Companies Act which is prescribing / restricting the Auditor’s qualifications, but it is the rules and regulations of the Accounting body defined as “Supervisory Body” which are dominant in making their members eligible or ineligible for Company Audit.
ICWAI, being one of the Two Statutory Accounting bodies established in India, from its incorporation has adopted in its object “Supervision and Control” of Audit Function apart from specialising in Cost and Management Accounting.
When our Political leaders always follow and copy the Laws of Western Countries, why the Audit provision in Indian Companies Act is made so restrictive as
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226 (1) ” A person shall not be qualified as auditor of a company unless he is a Chartered Accountant within the meaning of Chartered Accountants Act,1949″
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In UK Audit is not compulsory for all Companies and Exempted for certain Small companies subject to Turnover, Balance sheet total and number of employees criteria.
Day by day these threshold limits are getting enhanced and more and more companies are coming outside the purview of Compulsory Audit provisions. As per a Survey, nearly 75% to 90% of companies are outside the purview of Audit provisions.
But these companies have to file their Financial Statements with Government duly certified by a Reporting Accountant.
The provisions relating to Reporting Accountant are:
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249D.(1) The reporting accountant shall be a person who is a member of a body listed in subsectin (3) and who, under the rules of the body is either
(a) entitled to engage in public practice and not ineligible for appointment as a reporting accountant, or
(b) eligible for appointment as a company auditor.
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Bodies listed in Subsection (3) are
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(3) The bodies referred to in subsection (1) are
(a) the Institute of Chartered Accountants in England and Wales,
(b) the Institute of Chartered Accountants of Scotland,
(c) the Institute of Chartered Accountants in Ireland,
(d) the Chartered Association of Certified Accountants, and
(e) the Association of Authorised Public Accountants.
f) the Association of Accounting Technicians,
(g) the Association of International Accountants, and
(h) the Chartered Institute of Management Accountants.”
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On careful consideration of the above provisions, it is clear that CIMA is also a recognised body for certifying the Financial statements by its members as a Reporting Accountant. This is because
a) CIMA members are entitled to Public Practice as per its laws & regulation (though not Audit & Assurance Function)
b) CIMA has not made its members ineligible for appointment as “Reporting Accountant”
c) CIMA always advocated that they are Accountants in Business and the word “Accountant” rightfully belongs to them.
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As per Regulation 7 of CIMA council related to Members in Practice
accounting services includes advice and services in connection with
(i) financial and management accounting;
(ii) book-keeping and accounting records;
(iii) the provision of tax returns, the computation or other matters of direct and indirect taxation (including DSS contributions);
(iv) budgets, forecasts, cash flows, and business plans;
(v) funding to businesses;
(vi) company secretarial matters; and
(vii) accounting systems and management reporting.
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It is clear from the above that it is the CIMA’s rules that made their members eligible for appointment as “Reporting Accountant” as per seciton 209(D)(1)(a) of Companies Act. It is the maturity and the wisdom of the law makers.
Accordingly the practising members of CIMA are entitled to certify the Financial Statements of 75% to 90% of the companies as “Reporting Accountant” which are outside the purview of full Audit.
In Canada, in its wisdom, removed the Monopoly of CAs in Audit & Assurance functions of Publicly Traded companies and CMAs are equally recognised for Full Public Accounting Rights.
Again, why the Indian law makers who always follow the western laws and provisions are allowing only one out of TWO Statutory Accounting bodies for all the recognitions depriving the rightful position / benefits of the members of other accounting body i.e. ICWAI
Members are requested to share their views.
CMA. Rakesh Kataria
CAclubindia
