Cost and Works Accountants Act of India: Advancing Accountancy as a Profession

The Costs and Works Accountants Act is a legislation that provides a legal framework for the cost and management accountancy profession. The Indian Parliament enforced the Act to address the increasing need for professionals to help businesses control their costs and manage their financial resources.

The Act is a turning point in the cost and accountancy landscape as it provided for an autonomous institute, which is the Institute of Costs and Works Accountants of India(ICWAI), now known as the Institute of Cost Accountants of India (ICMAI). Apart from laying down provisions for the composition of the Institute, it also empowers the Institute to overlook all the affairs of the professions, ranging from providing educational courses to conducting exams and laying down a code of ethics for the relevant professionals.

Cost and Works Accountants Act, 1959

The Cost and Works Accountants Act came into force on 28 May 1959 to give legal recognition to the ICWA India as an autonomous body. It is a special legislation establishing the Institute as a “Statutory professional body” to regulate the costs and management accountancy profession.

It is a unique law meant to encourage and facilitate the accountancy profession. The Act mandates registration with the Institute to be eligible to practise cost accountancy in India.

The Institute Of Cost And Works Accountants

Incorporation

Section 3 of the Act lays down provisions for the institute’s incorporation. The Institute of Cost and Works Accountants is incorporated as a body corporate. Thus, it has all the features of a company, like the entry of names into the Register, which is similar to the subscription to a company’s articles, perpetual succession, common seal, and power to acquire, transfer and hold property in its name. The Institute has a separate legal entity and can participate in legal proceedings in its name.

Membership

According to Section 4 of the Act, the following persons can be members whose names can be entered in the Register:

1. A previous associate or fellow in a dissolved company just before the Act came into force. This person must be a permanent Indian resident and practising cost accountancy in India when the Act came into force;
2. Anyone who cleared the prescribed examination and training required to become an Institute member.
3. Individual practising cost accountancy at the time of commencement of this Act and meeting the eligibility requirements set by the Central Government or the Council on its behalf;
4. 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.
5. An Indian domicile person studying for a foreign exam recognised by the Government, or cleared the same, and is under training in India or otherwise when the Act came into force;

The person should complete their training within five years after the Act came into force.

The associates or fellows of a dissolved company need not pay a fee to be registered. Others 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 up to Rs. 6000 after the Central Government approves. The Central Government takes the required steps to ensure the entry of the names of associates or fellows of a dissolved company in the Register under section 4 of the Act.

Section 5 of the Act classifies members of the Institute into fellows and associates.

A fellow of the Institute was a fellow of the dissolved company and is entitled to entry of name in the Register. Anyone whose name is in the Register as a fellow can use FICWA after their name. FIWCA means Fellow of the Institute of Cost and Works Accountants.

An associate is anyone other than a fellow whose name is in the Register. An associate can become a fellow if they have been practising continuously in India for a minimum of five years before or after the Act came into force; a member who has been an associate for at least five years continuously and meets 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.

Practice Certificate

Section 6 of the Act mandates a practice certificate. Members with a certificate of practice are exclusively eligible to practise in India or elsewhere.

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

Cost Accountants

Section 7 of the Act prohibits Members of the Institute designated as cost accountants, from describing themselves in any other manner. However, they can have descriptions showing their affiliation with other accountancy institutes in India or otherwise and other educational qualifications.

Members of the Institute who form a firm are not prohibited from using cost accountants as the firm name.

Disabilities

Certain individuals are not entitled to enter their name in the Register under section 8 of the Cost and Works Accountants Act 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. They were removed from membership for misconduct. If the removal is for a specific time, then their name cannot be entered unless the removal period expires.

Council of the Institute

Section 9 of the Act lays down provisions for the composition of the Council. The Council manages the affairs of the Institute and its functions. It consists of a maximum of 15 individuals from the fellows. The members of the Institute choose them.

A fellow who is:

1. guilty of misconduct, professional or otherwise, and
2. Whose name is removed from the Register or a fine is imposed upon them cannot contest the elections.

Government employees cannot compete in Council elections. Individuals who previously worked as auditors of the Institute cannot compete in Council elections for three years after their term as auditors.

As per Section 10 of the Act, the Council members are eligible for re-election or re-nomination but cannot serve for two continuous terms. Members cannot elect the President as a Council member. ISection 10-A allows an aggrieved party to apply to the Institute’s Secretary in case of elections-related disputes. The Secretary forwards the application to the Central Government, and the Government sets up a Tribunal to hear election cases under section 10B.

Under section 11, the members of the Institute do not elect a council member from a constituency; the Central Government can nominate someone from the Constituency to fill the vacancy.

President

Section 12 of the Act deals with the President and Vice-President of the Institute. The President and the vice-president are elected from the members of the Council. The President is the Council head and has a term of one year. They can be re-elected as members after their tenure.

Vacancy

Section 13 allows the council Members to submit their resignation to the President in writing. A member’s position becomes vacant if they do not attend three Council meetings continuously without justification and are guilty of misconduct or get their names removed from the Register. Fresh elections or nominations are conducted to fill them.

Term and Functions of the Council

The term of the Council is four years, according to section 14 of the Act, but it keeps functioning until a new Council is formed. Functions of the council are listed under section 15 and they range from approving academic curriculum, determining exam fees, and framing eligibility criteria to appointing officers and employees and determining their income. They also select the Secretary and Director.

Council Committees

The Council has three standing committees– Executive Committee, Finance Committee and Examination Committee. The President and vice-president are ex-officio members of committees; each committee has three to five members elected by the Council.

The Council can also form a Training and Educational Facilities Committee and other necessary committees to implement the Act. Their functions encompass those prescribed by the Council.

The Council earns from the monies paid into the fund managed by the Council that deals with expenses. The money in the fund can be invested in securities.

Functions of the Institute

Section 15A lays down the functions of the institute. They are as follows:

1. Examining candidates for enrolling them;
2. Regulating the student-training;
3. Maintaining and publishing the Register of Members (candidates eligible to practise Cost Accountancy);
4. Collecting fees from candidates, members, and other relevant individuals;
5. Removing names from the Register of Members upon receiving orders from relevant authorities;
6. Maintaining a library and publishing books and periodicals on accountancy and relevant subjects’
7. Conducting elections to Council of the Institute;
8. Granting or refusing practice certificates in accordance with the Council guidelines;

The institute can also impart education via Universities and other bodies under the Act.

Register of Members

Section 19 and 20 provide for maintenance of the Register of Members. The Council maintains a Register of the members of the Institute in a prescribed manner. The Register of Members contains the following details of every member– name, address (residential and occupational), date of birth, domicile, date of entry of name, qualifications, certificate of practice and other prescribed details.

The Council publishes a list of members of the Institute on 1 April every year. The list can be given to any member upon request and fee payment.

Every member whose name is in the Register must pay an annual fee to retain their membership. The Council prescribes this amount, which should not be more than Rs. 5000. The Council can increase the fee above Rs. 5000 with the Government’s approval. However, the maximum limit is Rs. 10000.

According to Section 20 of the Act, the Council can remove the names of members from the Register in certain circumstances:

1. Their death,
2. Upon their request,
3. Non-payment of fees,
4. Disabilities mentioned above, or
5. Other disqualifications.
6. An order under this Act removes a member.

In case of removal due to non-payment of fees, the individual can get reinstated by paying the dues and an extra fee prescribed by the Council. The extra amount must not be more than Rs. 2000, but this can be increased up to Rs. 4000 after approval of the Government.

Penalties Under the Cost and Works Accountants Act

An individual falsely representing themselves as a member of the Institute or using “cost accountant” without membership can be imposed with a maximum fine of Rs. 1000 in cases of first conviction. If the person is subsequently convicted, they are fined a maximum amount of Rs. 5000 or imprisonment of a maximum term of up to six months or both under section 24 of the Act.

An individual is prohibited from using identical or similar names, seals, awards, designations of members, etc. In case of violation, a fine of a maximum amount of Rs. 1000 is imposed on the first conviction. If the person is subsequently convicted, they are fined a maximum amount of Rs. 5000 or imprisonment of a maximum term of up to six months or both under section 25 of the Act.

The Central Government can declare the non-application of penalties to certain diplomas and certificates offered by anyone other than the Institute if it is satisfied that they do not meet the prescribed qualification standards.

Companies incorporated outside India or in Indian territory cannot practise as cost accountants. Violating this rule attracts a fine of a maximum amount of Rs. 1000 on the first conviction and up to Rs. 5000 on subsequent conviction under section 26 of the Act.

Members of the Institute have the exclusive right to sign documents on behalf of their firms or practising cost accountants. Violating these provisions leads to imposing a fine of at least Rs—5000 on first conviction and Rs. 10000 on subsequent convictions under Section 27 of the Act.

If the offender under this Act is a company, the company and its representative at the time of committing that offence is guilty and is penalised accordingly under section 28 of the Act. An individual can escape liability under this section by proving their due-diligence or lack of knowledge. This section also imposes liability on relevant key managerial personnel like managers, or secretary, if the offence happened due to their neglect or consent or connivance.

A complaint made based on an order of the Council or the Government is the only way to initiate prosecution against anyone under this Act.

Quality Review Board

Section 29A provides for the Central Government to establish a Quality Review Board. The Board comprises a chairperson and four other eminent members with experience in law, business, economics, finance or accountancy.

The Council nominates two members, and the Central Government appoints the other two.

Functions

The Quality Review Board has the following functions as listed under section 29B:

1. Recommending the Council on the quality of services that the Institute members provide;
2. Reviewing the quality of services that the Institute members provide,
3. Reviewing the cost audit services of the Institute members;
4. Guiding the members to improve service quality and adherence to the relevant legal and regulatory provisions.

Section 29C lays down the Board procedure. The Board meets at a specified place and time and follows prescribed procedures in its meetings.

The Council covers the Board expenses as per section 29D of the Act.

Dissolution of Previous Institute

Section 30 of the CWA Act dissolved the Institute of the Cost and Works Accountants registered under the Companies Act 1956. After the dissolution, the Institute or its members cannot be subjected to legal proceedings, claims or demands unless it is to enforce the provisions of this Act.

The Act extinguished the rights of members of the dissolved company.

As per section 31 of the Act, all the assets and liabilities of the previous Institute are transferred to the new Institute. The contracts entered, debts taken, and agreements made by the previous Institute shifted to the new Institute and continued to have effect with the new Institute.

Ongoing legal proceedings to which the previous Institute was a party did not affect the transfer of assets and liabilities from the old to the new Institute.

The Act ensured that the employees of the previous Institute remained employed despite the establishment of the new Institute. They retained their positions, rights, terms and conditions, and other benefits according to section 32 of the Act.

However, section 32 of the Act barred the above employees from obtaining compensation under the Industrial Disputes Act of 1947 or other laws.

Conclusion

The Act lays out comprehensive provisions for developing cost accountancy as a profession today. It especially emphasises the development of an institute whose primary function is to deal with the academic aspects of cost accountancy. The Act strives to provide quality services and education in cost and management accountancy by promoting accountability of the members of the Institute and reviewing through the Quality Review Board.

Although the Act has elaborate provisions ranging from the formation of institutes to penalties, the practical application of the Act could be complex given aspects like delayed decision-making, corruption, and other relevant administrative issues. Additionally, considering the society today, the Cost and Works Accountants Act of 1959 has minimal penal provisions which along with other things paved the way for the enactment of the Chartered Accountant, Costs and Works Accountants and the Company Secretaries Act in 2022. The new Act provides for a better disciplinary mechanism and increased accountability for the cost and works accountants.