A Brief Overview of the Chartered Accountants Act,1949

The Constituent Assembly of India enacted the Chartered Accountant Act to manage chartered accountancy as a profession.

The Chartered Accountant Act has its roots in colonial India, where the registered companies had to maintain books of accounts under the Companies Act of 1913. This Act also mandated the appointment of an auditor to keep books.

In 1918, a diploma course called ‘Government Diploma in Accounting’ was introduced. In 1930, the Society of Auditors was established in Madras, after which the Central Government determined to maintain a record of practising auditors, and the register was called the Register of Accountants. In 1932, the GDA was abolished, and the Indian Accountancy Board was formed as an advisory body to the Governor General about matters such as qualifications, examination, and misconduct of auditors.

Independent India passed the Chartered Accountants Act in 1949 based on an expert committee report and established an ‘Autonomous association of accountants’.

Chartered Accountants Act, 1949

The Act was enforced on 1 July 1949. Section 3 of the Chartered Accountants Act 1949 establishes the Institute of Chartered Accountants of India as a body corporate with a common seal and perpetual succession. The body has essential functions regarding the courses and practice of Chartered Accountancy.

Objectives of the Chartered Accountant Act

The CA Act 1949 has the following purposes:

• To regulate the profession of Chartered Accountants.
• To establish the Institute of Chartered Accountants.

Thus, the Act lays down provisions for regulating the profession of Chartered Accountant by Institute of Chartered Accountant (ICAI).

Institute of ICAI

The Institute of ICAI is a body managing chartered accountants in India. ICAI is the world’s largest professional body of chartered accountants after CIMA-UK.

The Institute can acquire, transfer, and hold property as a juridical person.

Members

The Ministry of Corporate Affairs manages the ICAI. ICAI has two categories of members, namely–associates and fellows.

An individual becomes an associate member of the ICAI on entering their name into the register and can use the acronym ACA to show that they are an associate member of the ICAI.

The following persons can be members whose names can be entered in the register:

1. A registered accountant or a holder of a restricted certificate when the Act came into force;
2. Any person who cleared the prescribed examination and training required to become an Institute member.
3. An individual who passed the Government Diploma in Accountancy (GDA) exam or other equivalent exams before the Act came into force, despite not being qualified for registration as an accountant under Auditor’s Certificates Rules, 1932, but satisfies the conditions of the Central Government.
4. An accountant practising in Part B state, despite the lack of qualification to be registered as an accountant under Auditor’s Certificates Rules, 1932, satisfies the conditions of the Central Government.
5. An individual who cleared any other equivalent exam and training recognised by the Indian Government or the Council on its behalf, and if the individual is not a permanent resident of India, the Government can impose other conditions.
6. An Indian domicile person studying for a foreign exam recognised by the Government or cleared the same is under training in India or otherwise when the Act comes into force.

A registered accountant or a holder of a restricted certificate need not pay a fee to be registered. Other persons must apply for entry of their name in the register and pay a fee of not more than Rs. 3000 as notified by the Council.

The Council can increase the fee to Rs. 6000 after approval from the Central Government. The central Government takes the required steps to ensure the entry of their names in the register.

Associates and Fellows

An associate can become a fellow if the associate has been practising continuously in India for a minimum of 5 years before or after the Act came into force; a member who has been an associate for at least 5 years continuously and satisfies the criteria prescribed by the Council can file an application to become a fellow. They must pay a fee of not more than Rs. 5000. The Council can increase the fee after obtaining the Government’s approval.

Any person whose name is in the register as a fellow can use FCA after their name. FCA. denotes the Fellow of the Institute of the Institute of Chartered Accountants.

Practice Certificate

Members with a certificate of practice from the Council are exclusively eligible to practise in India or elsewhere.

A member should apply for the certificate and pay an annual fee as prescribed. Any person practising just before the Act came into force and applied for a certificate within 1 month after the commencement of the Act is not violating the mandatory certificate provision. The Council can cancel practice certificates under certain circumstances.

Chartered Accountants

All members of the ICAI, practising or otherwise, can use the description to show their designation. They can also add other descriptions such as educational qualifications if they are entitled to it.

Disabilities

Certain individuals are not entitled to enter their name in the register under the Chartered Accountants Act 1949 if they are:

1. Not of 21 years, or
2. Legally unsound, or
3. Undischarged insolvent, or
4. Discharged insolvent without a certificate stating that they were not the cause of the insolvency, or
5. Convicts in cases of moral turpitude in the course of the profession, or
6. Removed from membership for misconduct. If the removal is for a specific time, then the name of the member cannot be entered unless the removal period expires.

Composition of the Institute

The two bodies that primarily form ICAI are the Council and the Quality Review Board.

The Council is responsible for managing the affairs of ICAI and performing duties prescribed by the Act.

The Council comprises a maximum of 32 members elected by the Chartered Accountants, and the Indian Government nominates eight. They represent the SEBI, CAG. of India, Finance Ministry, Corporate Affairs Ministry, and other interested persons.

Fellows are disqualified from participating in the elections if they are convicted of the following:

1. A misconduct under the First Schedule attracts 3 years of disqualification;
2. Misconduct under the Second Schedule draws 6 years of disqualification;

Any person holding a position in the Central Government or the State Government cannot be a part of the Council.

Any person who served as an auditor of the Institute cannot hold a position in the Council immediately after 3 years after ceasing to be an auditor.

Any member cannot hold office for more than three continuous terms, and the President of the Council is not eligible for nomination or election as a member of the Council.

Redressal of Election Disputes

In case of any dispute regarding elections, an aggrieved party can apply to the Institute Secretary within 30 days of the declaration of election results.

The secretary sends the application to the Government. The central Government sets up a Tribunal to resolve the dispute. The tribunal is made up of a presiding officer and two members. The CA Act 1949 lays down criteria for the position of a Presiding Officer under Section 10B.

President and the Vice-President

The President is the ‘Chief Executive Authority’ of the Council, and the term of the President and the Vice-president is 1 year.

Vacancies

A vacancy arises in the following circumstances:

1. When the member tenders resignation in writing to the President;
2. When the member does not attend three consecutive meetings without proper excuse;
3. When the member is removed due to conviction for misconduct, professional or otherwise, and is punished with the imposition of a fine.
4. When a member’s name is removed from the register for any reason.

Casual vacancies are filled by conducting fresh elections.

Functions and Powers of ICAI

The ICAI operates under the supervision and control of the Council of the Institute. Thus, the Council must implement the provisions of the CA Act 1949. The functions of the ICAI (via Council) include the following:

1. To design the academic curriculum and conduct exams for the Chartered Accountant course;
2. To prescribe fees for enrolment of candidates;
3. To regulate the engagement and training of articled and audit assistants;
4. To prescribe standard auditing processes;
5. To recognise foreign qualifications and training to enrol candidates;
6. To prescribe standards of qualification for entry of names in the register;
7. To grant or refuse Certificates of Practice;
8. To maintain and publish a register containing the particulars of individuals qualified to practise as CAs.
9. To impose and collect fees from Institute members, candidates (examinees) and other relevant individuals.
10. To remove or restore the names in the Register of Members upon receiving orders from relevant authorities under the Act;
11. To regulate and maintain professional qualification standards of the Institute Members;
12. To financially assist individuals who are not ICAI members to carry out research in Accountancy;
13. To maintain a library and publishes periodicals and books on Accountancy;
14. To facilitate the operation of the Board of Discipline, Director (Discipline), and appellate body set up under the Act;
15. To enable the Quality Review Board to examine its recommendations. The Council publishes an annual report containing actions taken based on the recommendations of the Quality Review Board.

Quality Review Board

The Central Government established the Quality Review Board, which comprises a chairperson and 10 members, selected among eminent individuals experienced in law, business, economics, Accountancy, or finance.

The Council nominates five members, and the Central Government appoints five members.

Functions of the Quality Review Board

The Board has the following functions:

1. To review the service quality of the institute members
2. To recommend the Council on the service quality of the institute members;
3. To guide the Institute members to improve service quality and encourage them to adhere to relevant legal and regulatory provisions.

Code of Ethics

The Institute introduced the Code of Ethics in 1963. The code of ethics, initially known as the code of Conduct, lays down ethical standards for Chartered Accountants to facilitate their responsibility and encourage them to act in the public interest. All the Institute Members must abide by the Code of Ethics while performing their professional functions.

The 12th edition of the Code of Ethics is applicable and divided into three volumes. The first volume is on the 2018 International Ethics Standard Boards of Accountants (IESBA) Code of Ethics edition. Disobedience of the provisions under this volume amounts to professional misconduct under the Second Schedule of the Chartered Accountant Act 1949.

Volume II of the Code of Ethics is based on the national provisions that govern the CAs. These include amendments to the CA Act, CA Regulations, Council guidelines, Auditing and Accounting Standards, the Companies Act of 2013, and the Code of Ethics 2019.

Volume III contains disciplinary cases related to ethical issues. Cases are categorised issue-wise in the Index.

Conclusion

The Act lays down explicit stipulations to regulate the Chartered Accountancy profession, for which the ICAI was established. Although the Act mainly deals with the formation and regulation provisions such as misconduct, penalties, and regional councils, the functions of the Council and the Quality Review Board are emphasised in the application of the Act.

Additionally, the Code of Ethics plays a crucial role in maintaining the integrity of the ICAI, and it incorporates both international and Indian provisions to ensure the provision of quality services by the CAs. The constant revision of the Code of Ethics upholds the transparency and integrity of the ICAI in this much-needed time of rapid globalisation.

Therefore, despite some minor drawbacks concerning administrative issues and decision-making delays at the ICAI, the Chartered Accountant Act has achieved its objectives by regulating the CA nationally.