Nepal | November 26, 2020

Injustice to Registered Auditors: Why the state’s apathy?

DINESH TIMSINA
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The Chartered Accountant Act was amended in 2002 through backdoor tactics during the time when Nepal’s democracy had been suspended by then King Gyanendra, which delivered a death knell to the identity and respect of the Registered Auditors in Nepal. The Act was passed without any discussion in the House of Representatives and the National Assembly, and sent to the palace where the King blatantly gave his endorsement following the dissolution of the Nepali Parliament

As used to be the case, Registered Auditors were the sole providers of accounting-related services in the country. However, after the penetration of Chartered Accountant professionals in the auditing sector, the Registered Auditors were treated as second class auditors. This is nothing but a blatant violation of their professional right, interest and entitlement.

Registered Auditors are certified public accountant professionals, who number nearly 7,000 providing services to the public and government agencies.

But what led this to happen? This has happened because of the amended Chartered Accountant Act, initially passed in 1997, a document that only spoke of the identity of the Chartered Accountants. However, The Chartered Accountant Act was amended in 2002 through backdoor tactics and strategy during the time when Nepal’s democracy had been suspended by then King Gyanendra under caretaker Prime Minister Sher Bahadur Deuba, which delivered a death knell to the identity and respect of the Registered Auditors in Nepal. The Act amended in 2002 was passed without any discussion in the House of Representatives and the National Assembly, and sent to the palace where the King blatantly gave his endorsement following the dissolution of the Nepali Parliament.

The question here is, how could such an important act that directly impacts the country’s economy with regard to tax collection and tax forgery be passed without any discussion, proper procedure and meetings with experts? No discussion regarding the bill can be found which supports the necessity of the amendment. The reason is that the bill was ditto copy of the document sent by a bunch of Chartered Accountants, which was passed without scrupulous study benefitting the Chartered Accountants only.

More importantly, after the Second People’s Movement of 2006, the Nepali Parliament was reinstated, and it laid down a provision in its first declaration (2006) in the Lower House challenging any act passed during the King’s regime in the court of law and the House of Representatives that violates the constitutional norms and laws regarding its legitimacy.

Furthermore, Article 6 (B) of the declaration (2006) categorically specifies that any law or article of the Nepali Constitution 2047 (1990) that is in conflict with the 2006 declaration would be regarded as null and void. So the question is: does the amended Chartered Accountant Act of 2002 still hold legal standing or is it null and void? Another pertinent query that is being raised is, how does the amended Chartered Accountant Act (2002) and subsequent amendments after that impact the livelihood of the Registered Auditors? A Registered Auditor’s professional growth and position are undermined because the Act speaks only about the professional growth of the Chartered Accountants, putting a limitation on the Registered Auditors’ category and volume of transactions of an entity.

Furthermore, the Act also undermines the Auditor General Office, which was previously responsible for issuing certification, regulations, monitoring, and development and promotion of the auditor’s profession.

This Act does not allow any constitutional body to check and monitor the CAs’ activities, not even the Commission for Investigation of Abuse of Authority.

As a result, the CAs hold license to validate any financial statement without any fear of punishment.

The case of Unity Life International Company is still a raw wound because of the validation of its financial statement by a CA who today is walking free and without any punishment.

Nepal Rastra Bank, the central bank, has also played a hand in the present apathy towards the Registered Auditors. It was lobbied by the CAs’ body to consider the CAs as the sole authority for auditing the companies listed in the Security Exchange and all banking and financial sectors.

The NRB cites a singular case of Karnali Development Bank, where questions were raised by the NRB officials regarding the quality of the audit. Though the statutory auditor has to concentrate only on three important issues while conducting an audit – compliance with the rule of law and regulation, tax and fraudulence on behalf of public interest – the auditor can recommend the government for any action regarding anomalies found during the audit. The NRB’s objections went beyond these three issues.

If this was the case, NRB need go no further but reread the Unity Life International Lalitpur case where a CA gave a clean chit and approval to the financial statement submitted by Unity Life International Lalitpur in 2010, only to find later that the financial statement had been manipulated and doctored, leading to a loss of billions of rupees to the government exchequer and revenue.

The case of Unity Life International was against the public interest, and many people who had deposited their lifelong hard-earned money were completely destroyed and finished right under the nose of NRB. Can this be an incident to raise questions regarding the CA’s qualification, capacity and ethical integration to disqualify all of them from doing auditing work? So what needs to be understood is, while making an act that touches the life of many, it should be debated and discussed among members of the expert panel and, most importantly, the selection committee of the parliament.

Since this was not done in the case of the present amended The Chartered Accountant Act in 2002, the Nepali Parliament should take cognizance of this issue, and the amendment of 2002 and its subsequent amendments should be revoked, and all the decisions taken thereafter should be made null and void.

 


A version of this article appears in print on October 07, 2020 of The Himalayan Times.


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