ICAI empowered to hold the entire CA firm accountable for individual CA’s misconduct

• The Delhi High Court has sent a clear message to chartered accountant firms.
• It stated that the Institute of Chartered Accountants of India’s disciplinary body can hold not just individual accountants, but entire CA firms accountable for misconduct.
• How can accounting firms protect themselves? By adhering to those age-old principles; accountability and transparency.

Here is where it all started

In the wake of the Satyam accounting scandal in 2009, the Institute of Chartered Accountants of India (ICAI) faced a dispute regarding its disciplinary measures.

Petitioners argued that the institute could not target unnamed partners within the firm, in case of misconduct.

The matter remained unaddressed for many years.

Delhi High Court’s Decision

Well, the verdict is in.

The Delhi High Court has granted the Chartered Accountants Institute’s Disciplinary Committee (DC) the authority to take action against entire CA firms, not just individual accountants, in cases of professional misconduct.

Justice Prathiba M. Singh dismissed petitions from partners of firms such as BSR and Associates LLP, Price Waterhouse, and Lovelock & Lewes.

Significance of the Ruling

This ruling supports the CA Institute’s stance since the Satyam scam that it has the power to act against entire firms, despite challenges from audit firms.

MCA’s Role

The 2022 amendments to the CA Act included audit firms in the disciplinary process, but the Ministry of Corporate Affairs (MCA) is surely taking its time to implement these changes.

The ruling directs the MCA to enforce the 2022 amendments and consult on how multinational accounting firms (MAFs) should operate in India, acknowledging their role in bringing global best practices and opportunities.

The court directed the MCA to quickly notify these amendments and establish a framework for MAFs.

Strengthening ICAI’s Authority

Justice Singh emphasized the need for a robust system to prevent misconduct, stating that holding only one individual accountable undermines the Act’s purpose.

Changes in the Disciplinary Committee

The 2022 amendments changed the committee’s makeup, including non-members as presiding officers, which ICAI initially opposed, preferring the previous structure.

Wrapping up 

The Delhi High Court ruling significantly empowers the CA Institute to ensure professional integrity by holding entire firms accountable for misconduct.