The top court asked the government to set up a three member expert committee to look into the question, "whether and to what extent the statutory framework to enforce the letter and spirit of Sections 25 and 29 of the Chartered Accountant Act and the statutory Code of Conduct for the Chartered Accountants requires revisit so as to appropriately discipline and regulate MAFs".
The committee, to be set up within two months, the court said, "may call for suggestions from all concerned" and its report "may be submitted within three months thereafter."
"The Union of India may take further action after due consideration of such report", the court said in its directions.
Section 25 of the Chartered Accountants Act, 1949 says, "No company, whether incorporated in India or elsewhere, shall practise as chartered accountants", while Section 29 providing for reciprocal arrangement says that a subject of a country where an Indian accountancy professional can't practice too would not be allowed to practice in India or become a member of ICAI.
The Committee may also consider the need for an appropriate legislation on the pattern of Sarbanes Oxley Act, 2002 and Dodd Frank Wall Street Reform and Consumer Protection Act, 2010 in US or any other appropriate mechanism for oversight of profession of the auditors, said the judgement by the bench of Justice Adarsh Kumar Goel and Justice Uday Umesh Lalit delivered on February 23.
The Expert Committee, the court said, may also consider "steps for effective enforcement of the provisions of the FDI policy and the FEMA Regulations referred to above".
"It may identify the remedial measures which may then be considered by appropriate authorities."
Another question that Expert Committee may examine, according to Justice Goel speaking for the bench, is "... whether on account of conflict of interest of auditors with consultants, the auditors' profession may need an exclusive oversight body ..."
Besides other material, the court said that the three member committee may examine the report of the Study Group and the Expert Group.
The Study Group was set-up by the Council of the ICAI in July 1994 to examine attempts of MAFs to operate in India without formal registration with the ICAI and without being subject to any discipline and control. This was in the wake of liberalization policy and signing of GATT by India.
The Expert Group was set-up in the wake of the Satyam scam, and decisions of the ICAI laying down the Code of Conduct.
In its report submitted on July 29, 2011, the Expert Group said that "MAFs are rendering services which are rendered by the CAs in terms of Section 2(2) of the CA Act... They solicit professional work in international brand name. They have registered Indian CA firms with ICAI with the same brand names which are their integral part."
"There is no regulatory regime for their accountability. Thus, the principle of reciprocity under Section 29 of the CA Act, Section 25 prohibiting corporates from chartered accountancy practice and Code of Ethics prohibiting advertisement and fee sharing are flouted."
The court verdict came on a plea on petitions by S.Sukumar and NGO Centre for Public Interest Litigation (CPIL), who had sought investigation of MAFs and Indian Chartered Accountancy Firms (ICAFs) operating in India in breach of Code of Professional Conduct under the Chartered Accountants Act and its other provisions.
The petitioners had also sought penal action against them by cancelling their way of cancellation of permission by the Institute of Chartered Accountants of India (ICAI) to practice.
(This story has not been edited by Social News XYZ staff and is auto-generated from a syndicated feed.)
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