ICAI to impose ceiling on number of audits

By Our Special Correspondent

CHENNAI, MARCH 14. The Institute of Chartered Accountants of India (ICAI) proposes to introduce ``self-regulatory measures'' to impose a ceiling on the number of audits that members can undertake in private and public limited companies.

The institute has also decided to change its education pattern to ``reverse the present situation of easy entry into and difficult exit from'' the professional studies.

Announcing these decisions at a press conference here on Tuesday, Mr. N. D. Gupta, President of the ICAI, pointed out that the Government had, by an amendment to the Companies Act last year, excluded audits of private limited companies for purposes of reckoning the ceiling on number of companies audited by a chartered accountant.

However, ``in order to ensure the independence, excellent quality and effectiveness of audit for which our profession is known, the Council of the institute has taken a decision in principle to prescribe self-regulatory measures for our members, limiting the number of audits of private limited companies that a chartered accountant or a firm of chartered accountants can undertake in a particular financial year.''

Indicating that the ICAI would fix the combined ceiling of audit of private and public limited companies at 30, Mr. Gupta said modalities in this regard were being worked out.

As for the entrance examination for the professional studies, Mr. Gupta said the Foundation Course would be replaced by two professional courses, P-1 and P-2, each of ten months' duration. Students who had passed Plus Two (higher secondary) examination, would be allowed to join P-1 and after completing it, undertake P-2. After clearing P-2 only would they be eligible to join the professional course proper, including the prescribed period of articleship.

Graduates with a prescribed minimum level of marks would be exempted from undergoing the P-1 course. The ICAI would try to introduce the new system from October this year. Though the quality of members of the institute was quite high, the proposed pattern of entrance course would bring its studies in tune with international practice. It would also enable those who found themselves out of sync with the studies to leave and look for another profession early in their career.

Mr. Gupta said that at its meeting in New Delhi held from March 6 to 8, the Council of the institute approved the Accounting Standard on ``consolidated financial statements'', which could be adopted by Indian companies interested in tapping the capital markets abroad. A parent company which presented consolidated financial statements should present these in addition to its separate financial statements. The financial statements of the parent and its subsidiaries should be combined on a ``line-by- line basis'', adding like items of assets, liabilities, income and expenses.

The ICAI President said the institute had two weeks ago submitted the ``accounting part'' of standards relating to information technology and dot.com companies. However, work on valuation of such companies was a complex exercise which could take quite some time to complete.

On the controversy over the ICAI's recommendation that in the case of leasing transactions, depreciation benefit should be available to the lessee rather than the lessor, Mr. Gupta said the institute had ``chosen substance over form'' in arriving at this recommendation. The institute had approved draft guidance notes on compliance with two new amendments to the Companies Act effected last year in view of certain ``ambiguity'' in the law. The draft notes, covering sub-clauses (e) of Sec. 227 (3) relating to the manner of publication of observations and comments of auditors, and clause (f) relating to reporting on disqualification of directors, would be published soon.

He said the ICAI as also its counterparts in Pakistan, Bangladesh, Nepal and Sri Lanka had taken a common stand that movement of professionals across borders and not mere reciprocal recognition of qualifications was important in the proposed opening up of service sectors under the World Trade Organisation (WTO). He said the government was ``in dialogue'' with the institute to ensure that ICAI's standards and members were involved to a greater extent in consultancy assignments, which were at present dominated by professional firms from the west.

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