Krishna Prasad Acharya is the current president of the Institute of Chartered Accountants of Nepal (ICAN), the regulatory agency of accounting professionals. Before being elected as the president, he had served as the vice-president of the institute for the year 2018-19. A chartered accountant himself, Acharya had earlier served as the Chief Executive Officer of Employees Provident Fund for 5 years. Amid questions being raised about professional integrity of various professionals, including public servants, ICAN recently organised a conference on professional integrity for combating corruption in Kathmandu. The Post’s Prithvi Man Shrestha spoke to Acharya how ICAN as a regulatory agency can play an effective role in tackling corruption.

This interview has been condensed for clarity

The Institute of Chartered Accountants of Nepal (ICAN) recently organised a conference on professional integrity for combating corruption. Why do you think chartered accountants and accountants have a role to play in tackling corruption?

More often than not, politicians and bureaucrats get implicated in corruption cases. But at times, when various professionals fail in their professional duties, it ultimately promotes corruption. We organised the conference to convince professionals of their roles in curbing corruption.

If professionals like engineers, lawyers and accountants maintain professional integrity, they can make it difficult for anyone to become corrupt. ICAN also organised this conference to promote professional integrity among professionals themselves. We’ve just made a small beginning, and we hope other regulatory agencies such as the Nepal Bar Council and Nepal Engineering Council follow suit and help combat corruption.

Chartered accountants are often found covering up financial crimes committed by their clients. What are your thoughts on this?

There is a general perception that once chartered accountants or accounting professionals take charge, there should be no fraud in any company. But there might be lapses because auditors audit transactions conducted over a financial year in a month or two. The auditor is responsible for reporting non-compliance of any laws and regulations by a business enterprise. But auditing and investigation are two different things unlike what many believe.

An audit is a process of examining management practices and internal control systems based on documents provided. An auditor does not investigate like the Commission for Investigation of Abuse of Authority (CIAA) or the Central Investigation Bureau of Police. But yes, auditors can sense massive frauds. An audit cannot be completed if the auditor starts work by assuming there is a fraud. An auditor must begin work with the assumption that there is no fraud. But when they sense any fraud, they must review it and report it to the concerned authorities. The auditor must flag the loopholes in internal control that may lead to fraud and suggest remedies. But if a firm does implement the auditor’s suggestions, the risk of fraud remains. Auditors’ reports are therefore crucial for investigating agencies to look into financial fraud in any establishment.

At the conference, finance minister Yuba Raj Khatiwada accused chartered accountants of preparing a fake balance sheet and trying to cover things up. As a regulatory body, what will ICAN’s efforts be to ensure professional integrity?

We cannot generalise as there are people with ill intentions at an individual level everywhere. As a regulatory body, ICAN, on its part, needs to watch the activities of its members. We provide 30-hour CPD (continuous professional development) training to our members annually towards promoting professional integrity. But chartered accountants are facing such kind of blame globally too. To change such a perception, the International Federation of Accountants (IFAC), our umbrella organisation worldwide, conducts necessary research and prepares standards and codes of conduct. The IFAC also developed a new reporting format recently. As per the new format, an auditor should mention ‘key audit matters’ in the report, which means that auditors need to report the key risk areas they looked into and what they found. We are gearing up to implement this format from the next fiscal year. This will help detect potential major frauds in time. What’s more, we even scrap the licence of individual members who go against our code of conduct.

How many cases are there of disciplinary action by the ICAN on its members?

We had received 92 complaints against auditors in the last fiscal year, and we settled 80 of them. Seven cases are under consideration in the disciplinary committee while five cases have been sent to the Council for the final decision. ICAN has even suspended its members for up to three years. Members suspended for three years cannot do an audit of any limited company for an additional three years. Members who get a warning from the ICAN disciplinary committee cannot audit for three years as per the Company Act.

Do you publicise the list of CAs who were punished?

We have not publicised the names of such CAs so far but will do so soon. Considering the possibility of such CAs continuing auditing despite facing action from ICAN, we plan to publicise their names on our website, including the type of action taken against them. If somebody gets a clean chit, that will be made public, too.

The CIAA has filed a charge sheet against many accountants employed by the government who were found pocketing its revenues. What is the state of professional integrity among the account officers at the government services?

They don’t fall under the purview of ICAN. We regulate professional accountants who work in the private sector. The government accounting staff face separate disciplinary actions from the government authority as per the Civil Service Act. Government accountants registered as auditor and member of ICAN should also follow our code of conduct. There are registered auditors in government services too. So far, no complaint against them has been registered here, and none of the auditors slapped with corruption charges by the CIAA is a member of ICAN.

The government, from this fiscal year, introduced a system where people in business should submit the same balance sheet to the bank to receive loans and to the tax office to pay tax. But the general perception is that accountants help firms make separate balance sheets. Doesn’t it suggest the involvement of account professionals in assisting the businessperson in evading tax?

We have taken this issue seriously. Now, we have also been receiving complaints that firms are submitting their audit reports with the signature of fake auditors. So ICAN has introduced a new system called UDIN (Unique Document Identification Number) from this fiscal year. Under this system, each ICAN member should enrol with the UDIN. Each time he/she signs the document after auditing, they should mention the content of the audit as well as the name of the company. The system then generates the UIDN, which the auditor needs to mention in the document he/she signs.

The auditor needs to go through a similar process and get a separate UDIN when signing the audit of another company. Our system thus generates a database of work history of auditors. After we introduced this system, we have been working with the tax authorities to make it mandatory from the tax office too. Likewise, Nepalis visiting abroad, such as the USA and Australia, should also get their asset valuation certified by a CA. Such certification also requires UDIN. So this will end the practice of firms making double balance sheet.

Questions are also being asked about the regulatory capability of the ICAN as its board members are themselves chartered accountants and are elected for a year. How can a group of chartered accountants regulate their peers and how effective will it be?

ICAN’s code of conduct is like the holy book for us. We prepared it to promote self-discipline among members. We brief our members about the code of conduct regularly, and the CPD programme is one such effort. ICAN is working towards institutional and legal reforms to address this concern. We are reviewing our organisational structure by bringing in experts from outside as well. We are studying the possibility of introducing a robust regulatory body with professional staff to investigate complaints filed against any ICAN member and submit a report to the disciplinary committee for necessary action.

It is similar to the CIAA’s modus operandi where an investigation officer conducts all necessary investigation before submitting the file to the meeting of commissioners for final decision. We will have a robust regulatory department with a professional team of investigators. As of now, the disciplinary committee looks into it and the teams support the committee. We have now engaged an external team of experts to study if we have to amend the law to strengthen the ICAN’s regulatory function, making it more resourceful.

There is some concern about whether elected ICAN council members would adequately look into the accounts of their regular clients. In such a situation, concerned members are barred from participating in the decision-making process. Such members should submit disclosure about their relations with any business firm, failing which they face action from ICAN itself. But even in the current structure of the disciplinary committee, there is no such problem as we have representation from the Office of the Auditor-General and the Finance Ministry. It is already quite independent now, and we believe that strengthening staff size will be of further help.

The auditor-general’s report exposed a scandal related to the Tax Settlement Commission, leading to a corruption case filed against its members. Ncell was also forced to pay capital gain tax after the auditor-general’s report explained the unpaid tax from Ncell as irregularities. Are there cases where major frauds committed by private sector firms have been exposed due to auditing?

The auditor-general’s report is made public, but the audit conducted by our members is shared among the shareholders. An auditor of a private firm should not expose the audit report. Regulatory agencies take action based on the audit report. For instance, if any bank is found to have not adhered to the Nepal Rastra Bank’s directive in the audit report, the central bank takes necessary action. An auditor can say it is not earning asset or good asset in the case of a bank, do 100 percent provisioning and identify the weaknesses and risks, but they do not conclude those transactions as being fraudulent. At times, the auditor does not disclose all the issues in their final audit report, so we are preparing to implement reporting guidelines that makes it mandatory for the auditor to report key audit matters.