Auditors, who conceal facts or deliberately fudge company accounts, will face a harsher set of penalties.
The Companies (Amendment) Bill 2003 has proposed that every auditor of the company who is in default shall be punishable with a fine equivalent to three times the total remuneration received by such auditor or Rs 50,000, whichever is more.
Under section 233 of the existing Companies Act, the penalty for erring auditors is capped at Rs 10,000.
Further, the proposed Bill stipulates that every officer of the company who is in default shall be punishable with a fine of Rs 500 for each day during which the default continues.
However, the Institute of Chartered Accountants of India (ICAI) feels that these penalties can be difficult to implement.
As ICAI president, R. Bupathy said: “Penalties can be provided only after the affected parties, in this case the chartered accountants, are heard. Given the number of companies and the spread of the country, it can be a very long drawn out process for the administration.”
The new section proposes to substitute the existing section 233 of the Companies Act which deals with penalties for non-compliance by auditors with the requirements that come under the mandatory duties of an auditor and the signing of the audit report.
“By the end of this month, a committee of the Institute of Chartered Accountants will take cognisance of the pros and cons of the enhancement of the penalties for the erring chartered accountants. As of now, we are not against this, but we have our doubts about how effective and meaningful it will turn out in terms of implementation and how speedily,” said Bupathy.
Umesh Sehgal, a corporate lawyer and partner in a CA firm, said the stiffer penalties usually act more as a deterrent and remove the complacency over the audit process.
“On that account, the stiffer penalties augur well for the profession,” he added.
The proposed amendments, which will be implemented after approval from both the houses of Parliament and the Presidential assent, seeks to amend the existing Companies Act, 1956.