Big News for Chartered Accountants – 60-Tax Audit Capping- Confirmed by Supreme Court
Supreme Court in the matter of Case: B. V. Nagarathna & Augustine George Masih, JJ.
The Supreme Court’s decision to uphold the 60-tax audit capping imposed by ICAI (Institute of Chartered Accountants of India) is a significant development in the accounting profession.
The Supreme Court’s decision supports a balanced approach to professional regulation, ensuring high standards while allowing room for future growth and adjustments. This ruling should ultimately benefit the profession by enhancing the reliability and quality of tax audits, which is crucial for the overall financial ecosystem. Here are some key considerations and thoughts on this ruling:
Justifications for the Limit:
On the basis of this, the Supreme Court decided:
- By capping the number of tax audits, ICAI (Institute of Chartered Accountants of India) aims to ensure that Chartered Accountants (CAs) can devote sufficient time and attention to each audit, thereby maintaining high professional standards and accuracy in their work.
- The limit helps prevent CAs from taking on too many audits, which could lead to reduced quality of work due to time constraints and increased workload.
- Ensuring that Chartered Accountants are not overburdened is crucial for maintaining the integrity and reliability of financial reporting, which is essential for stakeholders, including businesses, investors, and regulatory bodies.
Constitutional Considerations:
- The court deemed the restriction reasonable to uphold professional standards & prevent Chartered Accountant from being overburdened, without violating Article 19(1)(g), Clause 6 of Chapter 6.
- Article 19(1)(g): The right to practice any profession is subject to reasonable restrictions in the interest of the general public. The Supreme Court found the cap to be a reasonable restriction aimed at ensuring the quality and reliability of tax audits.
- The Article 14: The restriction does not violate the right to equality as it applies uniformly to all Chartered Accountants, ensuring a level playing field.
- The clause was effective from April 1, 2024, providing sufficient time for CAs to adjust to the new limits.
Potential for Future Adjustments:
- The Supreme Court affirmed that ICAI (Institute of Chartered Accountants of India), as the governing body for the profession, has the authority to impose such limits. This supports ICAI’s role in upholding and enhancing the standards of the accounting profession both in India and internationally.
- Honorable Supreme Court affirmed that also acknowledged ICAI’s role in maintaining high standards in the accounting profession, both domestically and internationally. SC affirmed that ICAI has the authority to impose the tax audit limit and can increase the number of audits a CA can undertake in the future.
- The ruling also leaves room for ICAI to reassess and potentially increase the number of audits a CA can undertake in the future if circumstances change or if the profession evolves to handle higher workloads efficiently.
- The Court determined that the ICAI Institute Council possessed the legal authority to create the contested Guideline, which set a cap of thirty tax audits that a chartered accountant might perform in an assessment year, and then increased it to forty-five and thereafter lastly sixty.
Personal Thoughts:
- Given the importance of high-quality audits, the limit seems reasonable to prevent overburdening CAs and to maintain the integrity of financial reporting.
- The provision for future adjustments by Institute of Chartered Accountants of India is a positive aspect, as it allows for flexibility based on changing industry standards and capabilities of the professionals.
ICAI : CA can Submitting Suggestions
The Institute of Chartered Accountants of India is looking for opinions on whether to keep or change the existing limit / Caping of Sixty Tax Audit assignments per member for each Assessment Year. The deadline for submitting suggestions proposals is June 9th.
https://forms.gle/KtibQ2eVAuGxSGxDA
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