There has been ongoing debate regarding who should be responsible for conducting tax audits.
On one side, Chartered Accountants (CAs) are advocating that only their profession should carry out these audits.
On the other side, Company Secretaries (CS) and Cost and Management Accountants (CMA) are pushing for the inclusion of their professions in the tax audit process.
The issue of eligibility for tax audits has been a longstanding debate among professionals such as Chartered Accountants (CAs), Cost and Management Accountants (CMAs), and Company Secretaries (CSs) in India. Each of these professional bodies has sought recognition for conducting tax audits under Section 44AB of the Income Tax Act of 1961.
However, the Institute of Chartered Accountants of India (ICAI) has maintained its dominant position regarding tax audits, resulting in ongoing conflicts with CMA and CS professionals.
Let’s clarify each of the terms one by one:
TAX AUDIT
The dictionary meaning of the term “audit” is check, review, inspection, etc. There are various types of audits prescribed under different laws like company law requiring a company audit, cost accounting law requiring a cost audit, etc. The Income-tax Law requires the taxpayer to get the audit of the accounts of his business/profession from the viewpoint of Income-tax Law.
Section 44AB gives the provisions relating to the class of taxpayers who are required to get their accounts audited by a chartered accountant. The audit under section 44AB aims to ascertain the compliance of various provisions of the Income-tax Law and the fulfilment of other requirements of the Income-tax Law. The audit conducted by the chartered accountant of the accounts of the taxpayer in pursuance of the requirement of section 44AB is called a tax audit.
The Chartered Accountant conducting the tax audit is required to give his findings, observations, etc., in the form of an audit report. The report of tax audit is to be given by the chartered accountant in Form Nos. 3CA/3CB and 3CD.
TAX AUDITOR
The tax audit is to be carried out by an “accountant”. The term “accountant” has been defined in subclause (i) of Explanation to section 44AB as under:
For the purposes of this section, –
(i) “accountant” shall have the same meaning as in the Explanation below sub-section (2) of
section 288″.
The above-mentioned Explanation reads as under: “Accountant” means a Chartered Accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949) and includes, in relation to any State, any person, who by virtue of the provisions of the sub-section (2) of section 226 of the Companies Act, 1956 (1 of 1956), is entitled to be appointed to act as an auditor of companies registered in that State.”
CMA and CS vs. ICAI: The Increasing Dispute
Cost and Management Accountants (CMAs) specialize in cost management and financial analysis, while Company Secretaries (CSs) understand corporate law and governance. The Institute of Cost Accountants of India (ICMAI) is advocating for amendments to the Income Tax Act to recognize CMAs as eligible professionals for tax audits. ICMAI argues that CMAs’ expertise in costing, taxation, and financial analysis qualifies them for this responsibility.
The Institute of Company Secretaries of India (ICSI) has expressed interest in obtaining tax audit rights, arguing that company law and regulatory compliance fall within their responsibilities. However, their role in taxation is generally limited to corporate governance and compliance, rather than financial auditing.
Allowing CMAs and CSs to perform tax audits could ease the workload of CAs and provide businesses access to a larger pool of experts.
ICAI’s Opposition and Legal Developments
The ICAI has consistently opposed these demands, stating that tax audits require financial expertise, risk assessment, and a thorough understanding of accounting standards, all of which are essential to the CA profession.
Over the years, several legal battles and petitions have been filed, but no amendments have been made to permit CMAs or CSs to conduct tax audits.
There is a clear monopoly in conducting tax audits; however, Chartered Accountants are most qualified for this role. Chartered Accountants (CAs) are considered the best choice for conducting tax audits for several reasons:
Specialized Training and Expertise
CAs receive extensive training in financial reporting, auditing, and taxation. This specialized education enables them to manage complex financial data and ensure adherence to tax laws.
Legal Mandate and Recognition
The Chartered Accountants Act of 1949 grants Chartered Accountants (CAs) the authority to conduct audits. Additionally, the Income Tax Act of 1961 recognizes them as the primary professionals qualified to perform tax audits. This legal framework solidifies their role in ensuring compliance with tax regulations.
Forensic Accounting and Fraud Detection
CAs specialize in forensic accounting to identify financial irregularities and fraud, which is critical during tax audits. Their expertise helps prevent tax evasion and ensures precise financial reporting.
Experience and Practical Knowledge
With extensive experience in financial management and auditing, Chartered Accountants (CAs) are well-equipped to handle the complexities of tax audits, including the preparation of tax returns and representation of clients before tax authorities.
Regulatory Oversight
The Institute of Chartered Accountants of India (ICAI) upholds high standards for Chartered Accountants (CAs) by promoting continuous professional development and ethical guidelines, ensuring they remain competent and trustworthy for tax audit services.
Conclusion
The debate surrounding tax audit eligibility showcases the changing dynamics among professional bodies in India. Currently, Chartered Accountants (CAs) have the exclusive authority to conduct tax audits.
However, the calls from Cost and Management Accountants (CMAs) and Company Secretaries (CSs) indicate a growing demand for inclusivity and competition in this area. Addressing this issue will require a careful examination of qualifications, regulatory frameworks, and the potential impact on the quality of tax audits.