India Must have Independent Regulator for Auditors

Supporting the capital market regulator Sebi's proposal for an independent auditing regulator in India, global auditing and consultancy major PwC has said there is an urgent need to have a strong and powerful watchdog for this business.

"It's a great suggestion on the Sebi's part, but the decision has to be taken by the government, including by the Corporate Affairs Ministry and the Finance Ministry. There has to be a political will and then we can emulate the global example," PwC India Chairman Deepak Kapoor said on the sidelines of World Economic Forum Annual Meeting 2012.

Sebi late last year had said it would write to the India government, pointing out gaps in the regulations for auditors and suggest possible solutions.

The market regulator is already believed to have written to the government to consider a separate oversight authority for auditors, which is independent of audit profession.

Separately, Sebi plans to put in place a proper mechanism "for enforcing compliance with auditing standards by the auditors of listed companies".

Currently, the Institute of Chartered Accountants of India (ICAI) regulates accounting and auditing professions.

ICAI is a licensing-cum-regulating body of the audit and accounting profession in India. PwC's Kapoor said that ICAI is doing a reasonably good job as both a regulator and an institute.

"But we need to move with the times. A number of large countries such as the US and even some smaller ones like Sri Lanka have independent regulator for auditors. But India has not got one. Here also it is a case of India's image being hit abroad as people might say that you don't even have an independent regulator for auditors", he said.

Giving example of the US, Kapoor said the country has separate regulator and an institute for the auditing profession and both of them are doing great jobs.

"The punishment has to come from the regulator for any wrongdoing and not the institute. It is a clear case of conflict of interest. There is indeed a crying need for an independent regulator for auditors. ICAI has done a good job, but there are proven models in other countries for having an independent auditing regulator," he added.

The Benefits Of Independent Tax Tribunals

States are increasingly turning to independent tax tribunals. Most states now have either a judicial-branch tax court or an administrative-level tax tribunal that is independent of the state’s tax authority. Taxpayers and practitioners have pressed states for independent decision-making bodies for several reasons, including that the judges or administrative law judges who write decisions are impartial and knowledgeable in tax issues and that the opinions should more consistently and transparently apply the tax law because they will be published. All in all, independent tax tribunals have a positive impact on state tax systems.

In its first decision, issued October 1, the tribunal addressed whether taxpayers could obtain a three-year lookback period rather than a five-year lookback period. A lookback period is the number of years that a taxpayer could be required to amend her state income tax return and pay any tax and interest due.

In the case, the taxpayers discovered some questionable deductions and filing statuses on previous returns prepared by a now-deceased tax return preparer. The taxpayers notified the Department of Revenue of the errors on their previous years’ returns under the state’s voluntary disclosure program.

The legal issues at stake in the tribunal’s opinion admittedly aren’t that important. What is important is that the tribunal has begun to issue opinions, and its first opinion was rich with legal reasoning. It bodes well for the future.

The tribunal will also eliminate some of the bias that existed with all tax disputes in the state. It will reduce the bias against taxpayers and improve transparency by providing clarity and consistency in the administration of the state’s tax laws. With any luck, other states will take notice.