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FOR THE INSTITUTE of Chartered Accountants of India (ICAI) and many of its near-to-a-lakh members, the recent soothers from the Law Ministry — that there is no immediate provocation to amend the Chartered Accountants Act or the CA Regulations to rob the ICAI of its regulatory powers — should definitely be comforting in the short run. However, the basic question whether self-regulation by the ICAI has been successful still remains. There may not have been a case of professional failure in India on the Arthur Andersen scale. But accountancy practice — whether in CA firms or in corporate finance departments — has often failed to capture the true state of affairs of an organisation. The fall of Enron has quite clearly spurred the ICAI into bringing in hurriedly changes such as peer review, cap on `other fee' and so on. But there is always the danger of the new measures ending up being mere cosmetic exercises, giving a much-visible facelift whereas what was needed was a blood transfusion.

India is not short of regulators nor of regulations but certainly of the will to enforce as also the fairness in monitoring. When the ICAI demands that the Department of Company Affairs (DCA) reject the qualified accounts (that is, where the auditors have not given a clean chit to the company's financial statements), it has also to have the commitment to chase cases of omission — where the auditors failed to give a qualified opinion or disclaimer, or where all the window-dressed accounts revealed their true colours soon after the balance-sheet date. Institute must investigate suo motu annual reports with manifest contradiction between published information about accounts and the nature of audit observations. For a start, this can be undertaken for at least large, publicly-traded companies. The Institute may have earned a reputation for self-regulation that has by and large worked well. But it cannot afford to rest on its laurels. A greater degree of objectivity must be brought to the disciplinary mechanism by incorporating a jury model for hearing of complaints, or turning the existing system of in-camera hearing into an open court once a preliminary enquiry has established a prima facie case for judicial review. This would dispel a perception that the disciplinary system allows the sharks to swim by while trapping the errant eels.

The announcement in the Budget that the Government proposes to "strengthen regulation" to ensure effectiveness of auditors may remain a fond wish if the ICAI and the DCA spend their energies on the wording of auditors' reports — the drab pages that not many care to read. Before any hasty graft is attempted in the form of a super-oversight body to regulate the auditors, it would be worthwhile to give one more chance to the ICAI to clear its cobwebs and set its house in order. And it is incumbent on the Institute to actively enhance the image it enjoys in the public eye. Unless perhaps India needs something big like Anderson's debacle before "those who are awake when others are asleep" really wake up.

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