One in five CAs breach tax audit norms, says CAG report; regulator steps in to form panel

Rules now in force stipulate that a partner in a chartered accountancy firm can sign not more than 45 tax audits in a year.

Written by Khushboo Narayan | Mumbai | Published: June 2, 2015 2:28 am

Nearly one out of every five chartered accountants (CAs) in India appear to have breached tax audit norms, going by a recent report by the Comptroller and Auditor General of India — a charge serious enough to prompt the Institute of Chartered Accountants in India (ICAI) — the statutory regulator, to step in and form a committee to examine these violations.

The CAG report has pointed out that at least 18.87 per cent of CAs (12,435) in India issued more tax audit reports than prescribed by ICAI for assessment year 2013-14. This forms part of the 2014-15 annual report of the finance ministry released last month. Rules now in force stipulate that a partner in a chartered accountancy firm can sign not more than 45 tax audits in a year. So if there are 10 partners in a CA firm, then all the partners can collectively sign 450 tax audit reports. But there is a twist. This maximum limit of 450 tax audit assignments can also be distributed between the partners in any manner. Thus, a single partner can also sign 450 tax audits if the other nine decide not to sign any audit report, the ICAI has indicated on its website.

According to Manoj Fadnis, president of ICAI, the issue is being addressed and the group is in touch with the CAG and Central Board of Direct Taxes or CBDT. “This issue (CAG report) needs in-depth analysis and has more dimensions that what appears on the surface,” said Fadnis in an email response to queries by The Indian Express.

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Fadnis said it may be possible that the cases mentioned in the CAG report have not considered the exemptions given by the ICAI to auditors for tax audits under certain sections. “The cases of non-compliance will be dealt in accordance with the provisions of Chartered Accountants Act, and rules framed there under,” added Fadnis. He also said that the ICAI has also constituted a tax audit monitoring cell to check violations.

Over the last few years, the spotlight has been on some of these violations by auditors. In 2008, founder of Satyam Computer Services, Ramalinga Raju confessed to an accounting fraud of Rs 7,136 crore. More recently, proxy investor advisory service firms have called for an examination of the role of auditors in the ongoing fight between United Spirits Ltd board and its chairman Vijay Mallya. The board wants Mallya to step down after an internal probe revealed a diversion of funds from USL and its subsidiaries to some UB Group companies.But some chartered accountants have pointed out that the CAG report may after all be erroneous. “CAG’s report needs a serious review as they have mixed up a number of figures and the report seems inaccurate,” said TP Ostwal, a chartered accountant and partner at TP Ostwal & Associates.

The CAG report has found that CAs have “certified wrong information/claims  for various exemptions” in at least 74 cases having a tax effect of Rs 259.72 crore in assessment year 2013-14.

The report said that tax auditors did not report correct information regarding depreciation resulting in irregular allowance in 46 cases involving “short levy of tax of Rs 557.79 crore”. Similarly in 42 cases, capital expenditure was incorrectly allowed as the CAs did not report the amount in their tax audit reports resulting in short levy of tax of Rs 477.89 crore.

According to some chartered accountants, CAs are violating the norms because there are too many CA firms and the Indian market is too fragmented. “Many auditors are willing to sign documents all too easily and don’t care about ethics,” says Amit Maheshwari, a partner at chartered accountants Ashok Maheshwary & Associates.

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  1. B
    Jun 3, 2015 at 11:17 am
    Could you please share full name of the report ?
    1. Varanavasi Rajamanickkam
      Jun 4, 2015 at 7:55 am
      Report no 32 of C AND AG . GO to the website of C& AG
      1. Srikrishna Subramaniam
        Jun 4, 2015 at 1:03 pm
        This is tip of the iceberg. What it hides is more than what it reveals! Breaches like that pointed out by CAG are all pervasive in all attest work, not just tax audit. Clearly, ICAI is found wanting in the regulatory area. Look at the condescending peer review process that has been presented as a major accomplishment but lacks the teeth to make it compulsory. It is time to consider delineating the regulatory role vested with ICAI.
        1. Tharanath Akula
          Jun 2, 2015 at 5:02 am
          It Looks very surprising to note the comments made by CAG about CA's, perhaps they were sleeping all these years while accepting the IT returns file by those who stashed money abroad under the very nose of the government departments. I began my career as an accounts clerk way back in late 1950 s at that time I did notice that the auditors indulged glove in hands with the directors of the company's whose accounts they audited but I was too young and did not know what sort of action is required on my part to bring this to the appropriate authorities and then of course I changed my profession to engineering and the thought about the CA's have faded from my memory. The observation is little on the smaller side yet it is time to punish the erring very severely such that the rest of the pack get straightened to ensure that in future that the audited accounts are truly accurate with no blemishes. The glaring example is that of Ms.Jayalalitha's IT returns case which put the country's enormous