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.
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.