New Policy of Empanelment of CA Firms/LLPs and selection of Auditors for Financial Year 2023-24
Introduction
In India, Chartered Accountant firms and Limited Liability Partnerships with at least one full-time FCA Partner or FCA Sole Proprietor can apply for empanelment with this office for the main objective is to appoint the auditors of Companies under Section 139 (5) and 139(7) of the Companies Act 2013 and Statutory Corporations or Autonomous Bodies under the provisions of their respective Acts.
Criteria for Empanelment
In India, the main principle for empanelment and selection of statutory auditors have been arrived at after due consultation with the Institute of Chartered Accountants of India (ICAI)
All the impaneled firms or Limited Liability Partnerships are awarded points and it is calculated based on several parameters which are given below. In addition, in some circumstances, the firms or LLPs do not impanel or impaneled but are not considered for appointment as auditors are also explained and mentioned below:
Quantitative Parameters
The Quantitative parameters are mentioned following:
1. Points for full-time CA partners or sole proprietors (According to their association with the firm or LLP, only up to 20 full-time CA Partners in terms of their seniority-based):
The first full-time FCA partners will obtain 3 points for each partner
The full-time ACA partners will obtain 2 points.
Association of full-time CA partners or sole proprietors with the same firm will get 1 point above 5 years to up to 10 years and 2 points will obtain by each full-time CA Partner or Sole Proprietor above 10 years.
2. Points for full-time CA Employees ( only 20 full-time CA Employees will be awarded Points:
One point each provides to 5 full-time employees of Chartered Accountant and half point for the remaining 15 full-time Chartered Accountant employees.
3. Experience of the Firm/ Limited Liability Partnership: 0.5 points obtained by every calendar year out of a maximum of 10 points. That is counted from the date of constitution of the firm or entity or limited liability partnership firms with one full-time FCA or the date of the joining of the firm or LLP through an existing Chartered Accountant partner or any sole proprietor who has the longest association with the firm or LLP whichever is later.
4. Turnover of the firm or Limited Liability Partnership Firms from Audit Services only: he has obtained a maximum of 10 points.
Qualitative Parameters
The qualitative parameters are given below:
5. Firm or Limited Liability Partnership firms peer-reviewed by ICAI who has obtained a maximum of 25 points.
6. Based on audit experience who has obtained a maximum of 40 points?
7. Points for additional qualification or continuous skill gradation of the full-time CA Partner or Sole Proprietor:
Diploma in information systems from ICAI, Certified Information system Auditor from ISACA, Certified Internal Auditor from IIA, and Certified Fraud Examiner from ACFE, USA obtained only 1.25 points each. One full-time Chartered Accountant Partner or sole proprietor will be awarded points for one qualification only and a maximum of 20 points will be awarded to full-time CA Partners.
In Certification courses from ICAI in IND as, Forensic Accounting and Fraud Prevention, Public Finance & Government Accounting, Concurrent audit of Banks, Anti Money Laundering Law, Forex and treasury Management, and goods and Service Tax provides only 1 point for each member.
Professional Track Record
8. According to ICAI Professional Misconduct by any member: - Under the Chartered Accountants Act of 1949, the point score of the firm or limited liability partnership firms will be reduced by 10% each for sole proprietors, CA Partners, and CA Employees who are held guilty of professional misconduct during the previous year.
9. Unsatisfactory performance as auditor of PSU: - The point score will be turned down by 10%, in case the performance of the firm or LLP was found unsatisfactory and the firm or LLP was issued an advisory by the office to be more careful in the immediately preceding year in future.
10. Refusal of Audit allotted by CAG: - The point score of the firm or Limited Liability Partnership will be turned down by 10%, the firm or LLP had refused the audit assigned to it by this office for reasons other than being disqualified to act as an auditor of the assigned audit under the provisions of any act or some conditions that the office issues in the immediately preceding year.
In case, any firm or Limited Liability Partnership firm refuses the allotted audit for the second time then the firm or LLP would not be chosen from the subsequent year for 5 years.
11. Quality Review Board reprimanded the Firm or LLP: - The point score of the firm or LLP will be decreased by 10% in the immediately preceding year that has been issued an advisory through the Quality Review Board.
12. National Financial Reporting Authority reprimanded the Firm or LLP: - The firm or LLP has been issued or imposed an advisor or penalty deducted 10% point and debarred with or without penalty that does not to be impaneled for which time period that will be debarred in the immediately preceding year.
13. Debarment of firm or LLP by any regulator or government authority: - In case, any firm or LLP is not to be impaneled for years then it is debarred by the Regulatory Authority or any Government Authority.
14. CBI or ED filed the conviction and cases pending with these agencies: - CBI or ED filed the conviction against CA Partners or CA Employee who is associated and will not be impaneled. In case any pending case or any charge sheet has been issued or any case is under trial against a firm or LLP or CA Partner or CA employee then the firm or LLP will not be allotted for any auditing.
Allotment of Audit
1. Selection of Firms or Limited Liability Partnership firms for appointment as auditors where the audit fee is up to Rs.5Lakh: - The selection is made by correlating the point score of each firm or LLP with the audit fee of the unit of the auditee.
2. Selection of Firms or Limited Liability Partnership Firms for appointment as auditors where the audit fee is more than Rs. 5Lakh and It is called Major Audits:
I. The eligibility criteria for short-listing the firms or LLPs of Chartered Accountants for the allotment of Major Audits are given below:
The firm or LLP should have at least 6 full-time Chartered Accountants that are indicative of capacity to handle the big audits.
At least one full-time CA Partner should have an association of 10 years or more with the firm or LLP and at least 3 full-time CA Partners of the firm or LLP should have an association of 5 years or more with the firm or LLP, and the holding on two full-time CA Partners who should have an association of 1 year or more with any firm or LLP for demonstrating the stability over time.
The firm or LLP should have been in existence for 10 years or more for proving that it is a well-established firm or LLP.
At least one of the full-time CA partners of the firm or LLP must possess the qualification of CISA from ISACA, USA, or the qualification of DISA from ICAI.
The firm or LLP should have audit experience of 5 years of audits that are assigned by CAG.
II. In addition to correlating the point score that is earned by each firm or LLP with the audit fee of the auditee unit, factors like; the audit experience of the firm or LLP, the capability of handling big audits, location of the firm’s/LLP’s branch offices, etc. are also considered in the selection of auditors for Major Audits.
Rotation of Audits
The total time period of appointment of a firm or LLP as auditor shall be for 3 F.Y. that is provided by the firm or LLP continues to be eligible for the said audit, its point score has not turned down by more than 25% over the point score of the previous year, and the firm or LLP has not been debarred from an appointment in the year by the office.
A firm or LLP who retires or surrenders from an audit of a Maharatna Company shall not be entitled to allotment of audit of any Maharatna Company for 4 years after such retirement or surrender.
In the case of a Maharatna or Navratna Company, a firm or LLP after retiring or surrendering that is not considered for the same Company for 5 years.
Conclusion
It concluded that all the impaneled firms or Limited Liability Partnerships are awarded points and it is calculated based on several parameters which are given below. Chartered Accountant firms and Limited Liability Partnerships with at least one full-time FCA Partner or FCA Sole Proprietor can apply for empanelment with this office for the main objective is to appoint the auditors of Companies under Section 139 (5) and 139(7) of the Companies Act 2013 and Statutory Corporations or Autonomous Bodies under the provisions of their respective Acts.
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