Know all about Coordination Committee between ICAI, ICSI and CMA
The Chairperson of the Standing Committee on Finance having been authorised by the Committee present this Forty-fifth Report on ‘The Chartered Accountants, The Cost And Works Accountants And The Company Secretaries (Amendment) Bill, 2021’
‘The Chartered Accountants, The Cost And Works Accountants And The Company Secretaries (Amendment) Bill, 2021’, introduced in Lok Sabha on 17 December, 2021 was referred to the Committee on 22 December, 2021 for examination and report thereon, by the Speaker, Lok Sabha under Rule 331E of the Rules of Procedure and Conduct of Business in Lok Sabha.
An independent witness submitted the following suggestion: “Establishment of Indian Institutes of Accounting. This proposal is for establishing a string of Indian Institute of Accounting (HA) that will raise the standards of accounting education and offer competition to the Institute of Chartered Accountants of India.
Constitution of a Coordination Committee
The provision for a Coordination Committee currently does not exist in the Principal Acts.
Clause 9 of the Bill reads as under:
After section 9 of the principal Act, the following section shall be inserted, namely:—
“9A. CO There shall be a Coordination Committee consisting of the President, Vice-President and the Secretary of the Council of each of the Institutes of Chartered Accountants of India, the Cost Accountants of India and the Company Secretaries of India for the development and harmonisation of the professions of Chartered Accountants, Cost Accountants and Company Secretaries.
- The meeting of the Coordination Committee shall be chaired by the Secretary, Ministry of Corporate Affairs.
- The meeting of the Coordination Committee shall be held once in every quarter of a year.
- The Committee shall be responsible for the effective coordination of the functions assigned to each Institute and shall-
- ensure quality improvement of the academics, infrastructure, research and all related works of the Institute;
- focus on the coordination and collaboration among the professions, to make the profession more effective and robust;
- align the cross-disciplinary regulatory mechanisms for inter professional development;
- make recommendations in matters relating to regulatory policies for the professions;
- perform such other functions incidental to clauses (i) to (iv) above.
Views and suggestions from the three Institutes on the proposed Constitution of
a Coordination’ Committee are as under:
The institute of Chartered Accountants of India (ICAI) during the course of evidence submitted:
“Constituting a Coordination Committee would amount to not only intruding the autonomy of the Institute but it may also hamper the decision-making authority of the Councils of the respective Institutes which is evident from the functions proposed to be assigned to this Committee under sub-section (4).
A Coordination Committee of all the three Institutes is already in place as a .Non-Standing Committee of the Institute under Section 17. This may be made a Standing Committee and its terms of reference should be to discuss and resolve common issues like Multidisciplinary Partnership etc.”
The Institute of Cost Accountants of India (ICoAI) in a written submission stated:
“The Institute support proposal of establishment of a Co-ordination Committee. It has been submitted that it is a welcome proposal for the Secretary, Ministry of Corporate Affairs to chair meetings of the coordination committee that would facilitate coordinated decisions and actions to promote the common professional pursuits in the country and abroad.”
The Institute of Company Secretaries of India (ICSI) furnished the following suggestion:
“The main purpose of the Coordination Committee is to bring coordination and harmony among the three institutes and it should make recommendations to that effect. The scope of the Co- ordination Committee should be for such matters/ areas that may require action by more than one Institute. It should not be made responsible for the functions assigned to each Institute. Accordingly, the words be responsible” in Sub-section (4) be deleted and the word “work” be inserted.
The word “ensure” in subsection 4 (i) be replaced with the words “make recommendations for”. Furthermore the words “Infrastructure” and “other related works of the Institute” may be removed, as the same should be under the purview of the respective institutes and not of the committee.”
The Ministry of Corporate Affairs furnished the following comments on the above suggestions:
“It may be noted that the two Institutes, ICoAl and ICSI have not objected to constitution of such a Committee. The purpose of the Committee is not to interfere in the functioning of each institute but effective coordination of the functions assigned to them in order to make the profession more effective and robust. At present, often it is seen that initiatives of one institute do not find support from other Institute since there is no mechanism of regular meetings of the representatives of the three Institutes at any forum. it may be noted that an Mali was signed in the year 2000 by ICSI with the ICAI & ICoAl, two other professional institutes, under which a Coordination Committee of the three Institutes was constituted.
The proposed mandate of the Coordination Committee inter-alia is to ensure quality improvement of the academics, infrastructure, research and all related works of the Institute.
Section 29 of IIM Act, 2017 and Section 40 of HIT Act, 2017 also envisages a Coordination forum for all the IIM and IIIT.
The Standing Committee of a particular Institute cannot function as a coordination platform for all the three Institutes. In order to make the Coordinative effective, it is required that the representatives of the three Institutes meet periodically on a common agreeable platform. As per the proposed bill, the Coordination Committee will comprise of Presidents, Vice-Presidents and Secretaries of the three Institutes, quarterly meeting of which shall be held under the chairpersonship of the Secretary, Ministry of Corporate Affairs, which is the administrative Ministry of all the three Institutes.
Regarding the constitution of Coordination Committee, the recommendations of the High– Level Committee Report headed by Ms. Meenakshi Datta Ghosh reads as under:
“Presently, the Co-ordination Committee among three Institutes has been constituted in an informal manner with non-specific terms of reference. The Coordination Committee meets in-frequently with no significant schedule for deliberation. Given the fact that these three Institutes together constitute an integral part of Corporate Governance and financial oversight across the country, effective co-ordination between three Institutes should be imperative. The Terms of Reference for this Co-ordination Committee should include all aspects of developing as well as regulating the profession.”
The Committee note that the Bill seeks to constitute a Coordination Committee for the development and harmony of the three professions of Chartered Accountants, Cost Accountants and Company Secretaries. While the intent of the proposed amendment is effective coordination between the three Institutes, the Committee find that the apprehensions expressed by the ICAI regarding dilution of autonomy and the decision-making authority of the Council may be suitably addressed. The Committee, however, note that the other two Institutes in question, that is, ICoAl and ICSI have not objected to the constitution of the Coordination Committee as proposed in the Bill. The Committee are of the view that the terms of the constitution of the proposed Coordination Committee may be reviewed in as much as it may be chaired by an eminent person from Industry, Finance or Business who is not a Member of any of the three Institutes in question, instead of the Secretary of Ministry of Corporate Affairs. The Secretary can be a member of the Committee and represent the Government side. The Chairman may thus be nominated by the Central Government out of a panel orsuch eminent persons prepared and provided by the respective Councils. The other Members of the Committee may be the elected office-bearers of the Council as proposed in the Bill. The Coordination Committee may act as the apex body for harmonious regulation, effective professional development, and objective disciplinary oversight of the three Institutes, particularly keeping in view the fast-emerging prospect of multi-disciplinary firms entities and the fact that the three Professional Institutes in question together constitute the corporate governance and financial oversight framework across different sectors of our economy. The Coordination Committee may also be renamed as the Governance Committee to reflect its broader mandate of harmonious regulation, effective development, and disciplinary oversight of the three Institutes.
B. Composition of Board of Discipline and Disciplinary Committee
With regard to the composition of the Board of Discipline and Disciplinary Committee, the existing provision and the proposed changes in the Bill are as under:
|Existing Provision||Proposed amendment|
|Section 21A. Board of Discipline (1) The Council shall constitute a Board of Discipline consisting of- a person with experience in law and having knowledge of disciplinary matters and the profession, to be its presiding officer; two members one of whom shall be a member of the Council elected by the Council and the other member shall be nominated by the Central Government from amongst the persons of eminence having experience in the field of law, economics, business, finance or accountancy;”||“21A. (.1) The Council shall, by notification, constitute one or more Boards of Discipline, each consisting of— a person, not being a member of the Institute, with experience in law and having knowledge of disciplinary matters and the profession, to be nominated by the Central Government as its Presiding Officer, from out of a panel of persons prepared and provided by the Council in such manner as may he prescribed;one member, who is a person of eminence having experience in the field of law, economics, business, finance or accountancy and not being a member of the Institute, to be nominated by the Central Government from out of a panel of persons prepared and provided by the Council in such manner as may be prescribed; one member to be nominated by the Council from out of a panel of members of|
the Institute to be prepared by the Council, in such manner as may be prescribed.”
|Section 21B. Disciplinary Committee (lithe Council shall constitute a Disciplinary Committee consisting of the President or the Vice-President of the Council as the Presiding Officer and two members to be elected from amongst the members of the Council and two members to be nominated by the Central Government from amongst the persons of eminence having experience in the field of law, economics, business, finance or accountancy: Provided that the Council may constitute more Disciplinary Committees as and when it considers necessary||(1) The Council shall, by notification, constitute one or more Disciplinary Committees, each consisting of—a person, not being a member of the Institute, with experience in law and having knowledge of disciplinary matters and the profession, to be nominated by the Central Government as its Presiding Officer, from out of a panel of persons prepared and provided by the Council in such manner as may be prescribedtwo members, who are persons of eminence having experience in the field of law, economics, business, finance or accountancy and not being a member of the Institute, to be nominated by the Central Government from out of a panel of persons prepared and provided by the Council in such manner as may be prescribed;two members to be nominated by the Council from out of a panel of members of the Institute to be prepared by the Council in such manner as may be prescribed: Provided that the Presiding Officer nominated under clause (a) and the members nominated under clause (b) may be the same for different Disciplinary Committees constituted under this sub-section.|
The ICAI submitted the following suggestions on the above issue:
“in regard to amendments proposed under this section, the ICAI have the following strong views/objections:-
Composition of the Board of Discipline (BOD)
The unprecedented provisions of appointment of 2 non-CAs as members (out of 3 members’ Board) may have a larger impact as the work of CAs would be majorly judged by Non-CAs. Earlier there used to be only one Govt. nominee in BOD and Presiding officer used to be nominee of Council only.
The third member would be CA member who would be nominated by Council from a panel to be prepared by Council.
It may be mentioned that non-CA members would not be having in-depth knowledge of Accounting Standards, Standard on Auditing, scope of audit, inherent limitations of audit, basic concepts of audit like true and fair, materiality, substance over form, test base checking etc, etc. Auditing has increasingly become highly technical and specialised and the scope of audit is quite clearly defined through multiple standards.
Further, the decisions in ROD are taken unanimously i.e., with the consent of all members present including Government Nominee members. There is barely any instance when any member has dissented from the decision taken by BOD as a whole.
Composition of Disciplinary Committee (DC)
Regarding the composition of the Disciplinary Committee, the ICAI is of strong view- that the conduct of professionals should be judged by the professionals only.
International Federation of Accountants (IFAC) has issued Statement of Members Obligation’s — 6 (SM06) and ICAI being a member of IFAC needs to comply with the same. IFAC has in its communication to ICAI confirmed that ICAI is compliant with SM06.
Further, best efforts are made to ensure that the composition of DC is made in such a way that no member/minimum possible members hear the cases of the region to which he I she belongs.
The Appellate Authority already constituted under section 22 A of the Act has majority of non CA Members and all are appointed by Govt, The Chairperson is also a non CA member.”
In this regard, the Institute of Cost Accountants of India submitted the following suggestion:
“The Institute has no reservation on the composition and manner of constituting the Board of Discipline and Disciplinary Committee(s). We as a professional body have always followed a concept of transparency, independence, and ethics in governing our Institute and Members. Even today, our disciplinary committees have presence of Government nominated Council Members who are not Cost Accountants. Therefore, we will have no difficulty even if the Presiding Officer and few other members of the Board of Discipline or the Disciplinary Committee would be non-Cost Accountants. We would welcome this change which is purely governed by the principles of ethics and unbiased justice. Similar practices prevail in leading professional accounting bodies of other countries.”
The Institute of Company Secretaries of India submitted the following suggestion:
1. Parameters for selection of Presiding Officer and Members of BoDs and DCs and such restriction should be specified through Rules rather than through regulations
2. It is proposed to include one member from out of the Council of the Institute as he can understand the technicalities of the profession, policies and code of conduct laid down by the Council and its practicalities or intricacies which an outside member may not be able to appreciate.”
The Ministry of Corporate Affairs commented on the above suggestions as under:
“The Council shall continue to constitute the BoDs and there will he no change in
the number of members in the bodies. However, the Presiding Officer of the
BoDs will be nominated by the Central Government from out of a panel of persons having experience in law and having knowledge of disciplinary matters and the profession, prepared and provided by the Council.
One Member in BoD snail be nominated by the Central Government from out of a panel of persons having experience in the field of law, economics, business, finance or accountancy, prepared and provided by the Council. Remaining One Member in BoD shall be nominated by the Council from out of a panel of members of the Institute to be prepared by the Council.
In this regard, Global Best practices adopted in USA, UK, Australia, Canada and South Africa have been studied.
The conduct of the Chartered Accountants who are auditors of public interest entities are regulated’ by independent regulators which are constituted by the Government and in such bodies majority members are non—Chartered Accountants.
The remaining auditors and Chartered Accountants (who are not under the domain of independent regulators) are regulated either by Statuary Self-Regulatory Organisations (SROs) like India or Canada or by Self-Regulatory Organisations which are non-Government organisations like in UK, South Africa and Australia.
In India, misconduct of auditors of public interest entities comes within the domain of National Financial Reporting Authority (NFRA). The auditors or Chartered Accountants which are not covered by NFRA comes under the domain of ION.
Globally, there is a clear separation of elected bodies/members from Investigation and Disciplinary process in the SROs. It has been observed that–members of the Council or other Committees of the Council/Board are not part of the disciplinary panels.
In UK, lay members (Non-CA) head the Disciplinary Panels. (In UK there are multiple bodies imparting education and regulating the accountancy profession, unlike India, where ICAI enjoys status of statutory monopoly).
In USA, State Boards of Accountancy regulates the profession and license to practice is also given by them. There are 56 Boards of Accountancy in USA and the members of the Board are appointed by the Government.
In the South African Institute of Chartered Accountants (SAICA), a self-regulatory organization (SRO) for Chartered Accountants in South Africa, chairperson of Professional Conduct Committee, is generally an attorney/advocate or a retired Magistrate. Similarly, the chairperson of Disciplinary Committee of SAICA also happens to be advocate/attorney or a retired Magistrate. In Accountancy Bodies in Australia and Canada, no member of the Board/Council is a member of the Disciplinary Tribunal.
International Federation of Accountants (IFAC) an advocacy organization for the accountancy profession having more than 175 members and associates in more than 130 countries and jurisdictions, in its Statement of Member Obligations (SMO-6), has recommended independence in investigation and discipline functions. As per IFAC recommendations, independence in regulatory functions of SROs is measured in terms of participation of non-auditors in disciplinary and investigation functions.”
During the course of evidence, the representative of Ministry of Corporate Affairs stated as under:
“There is no government interference in the constitution of these bodies. The Council will constitute these bodies. They will recommend the panel. They will also have their own nominees in this. So, there is no change. Rather than what we have done, we have withdrawn our government nominee. There will be no direct government nomination. So, it is rather giving more autonomy to them to suggest a name which they feel is good to regulate them. They will be suggesting names, we will not be .suggesting names. In fact, the earlier provision was that the Government will appoint two nominees in disciplinary committee. That we are withdrawing. So, it is in the nature of now giving more autonomy to them. Through regulations, Council will constitute BOD, DC. They will suggest names to us. Whatever name they suggest, we may agree. They are also having their own nominees in the Council.”
The ICAI during the course of evidence submitted the following data on the quantum of punishment:
|QUANTUM/ NATURE OF PUNISHMENT||DC||BOD*||TOTAL|
|Reprimand with & without fine||165||148||313|
|Membership Removal upto 6 months with & without|
|Membership Removal from 6 months to 1 year with &|
|Membership Removal from 1 year to 5 years with &|
|Membership Removal more than 5 years with & without fine||2||0*||2|
|Punishment yet to be awarded||142||27||169|
* BOD can remove the name of a member maximum upto 3 months
On the composition of the Disciplinary Committee, the High Level Committee headed by Ms. Meenakshi Datta Ghosh recommended as under:
“In the composition of the adjudicating bodies, the only way to strictly pre-empt conflict of interest and to sustain the independence of the adjudicating bodies, follow the good governance precedent set by Ministry of Corporate Affairs, in 2009. While constituting the Appellate Authority under sub-section (1) of Section 22A of the Chartered Accountants Act, 1949 the MCA used a formulation in clause (b) of the said sub-Section (1) which states: ‘The Central Government shall, by notification, appoint two part-time members from amongst the persons who have been members of the Council of the Institute of Company Secretaries of India for at least one full term and who is not a sitting member of the Council”. This precedent beautifully and specifically addresses the conflict of interest issues.
The High Level Committee recommends that for ICAI, ICSI and ICoAl, the future Disciplinary Committee will have five members, with the following composition:
- two Govt. Nominees, as per communication addressed by Ministry of Corporate Affairs to each Institute;
- Two reputed professionals with not less than 15 years of relevant experience, recommended by the Council of each Institute, and appointed by the Ministry of Corporate Affairs. These two professionals should not be sitting Council Members and, once appointed to the Disciplinary Committee, shall not be eligible in seeking election to the Council for a period of one term after the expiry of their term on the DC;
- One member should be a professional, with a legal background, with at least 15 years experience, to be recommended and appointed by the Ministry of Corporate Affairs.”
The terms of the Statement of Objects and Reasons clearly state that the conflict of interest associated with an autonomous institution running both the administrative as well as disciplinary committees needs to be addressed. While the intent of the proposed amendments seems to bring in more accountability and transparency in the decision-making process, the ICAL have opposed the appointment of a non-CA as the Presiding Officer on the premise of lack of in-depth professional knowledge. The International Federation of Accountants (IFAC) in its Statement of Member Obligations (S100-6), has recommended independence in investigation and discipline functions and the ICAI has submitted that they are fully compliant with SMO-6 of [FAG. The ICAI further claims that disciplinary decisions have been taken unanimously and there is no conflict of interest among the members in the current setup of the Board of Discipline (BoD) and the Disciplinary Committee (DC). With regard to disciplinary proceedings, the Committee find that among the cases adjudicated by the Disciplinary Committee from 2007 to 31st December, 2021, 7 out of 557 total cases were penalised with permanent removal with or without fine. The Committee feel that while the autonomy and independence of the Professional Institutes should not be interfered with unnecessarily, the integrity associated with financial reporting cannot be diminished in any way since it reflects business standards and financial robustness for the entire country. There seems to be, however, some divergence in the interpretation of the proposed amendment between the Ministry and the ICAI. While believing that the proposed amendments do not take away the professional autonomy of the three Institutes in any significant manner, the Committee are inclined to endorse the same without any modification. The members of the Disciplinary bodies may thus be appointed as proposed in the Bill.